-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IJV3g3CS9n+KFLR+lCFFy4BCo1ll5qRfDaEoumr3LAjoRnCQrJipCHKhJAgexRVg 2ZWCcb9Fa57Jck8dXQ7MOA== 0001068800-01-500087.txt : 20010329 0001068800-01-500087.hdr.sgml : 20010329 ACCESSION NUMBER: 0001068800-01-500087 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13215 FILM NUMBER: 1582481 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 EX-10.6 1 ex10p6.txt PHANTOM STOCK PLAN Exhibit 10.6 GARDNER DENVER, INC. PHANTOM STOCK PLAN FOR OUTSIDE DIRECTORS (AS AMENDED MAY 4, 1998 AND MARCH 7, 2000, WITH AN EFFECTIVE DATE OF APRIL 1, 2000) 1. PURPOSE. Gardner Denver, Inc. (the "Company") hereby ------- establishes this Phantom Stock Plan for Outside Directors (the "Plan") in order to promote the interests of the Company and its stockholders by having a portion of the total compensation payable to its outside directors be deferred in the form of "phantom stock units," thereby increasing each outside director's proprietary interest in the Company and further aligning their interests with the interests of stockholders generally. 2. EFFECTIVE DATE. The effective date of this Plan is -------------- August 6, 1996. 3. PHANTOM SHARE UNITS. ------------------- (a) In addition to the cash compensation otherwise payable to each outside director of the Company, the Company shall establish and maintain a Phantom Stock Account ("Account") for and in the name of each outside director. Subject to the provisions of Section 10 of this Plan, on the first day of each month, the Company shall credit the number of phantom stock units ("Units") specified in Section 3(b) below to the Account of each person who is an outside director of the Company on said date. (b) The number of Units credited on the first day of each month to the Account of an outside director shall be equal to (i) the sum of $583.33 plus one-twelfth of the amount of the annual director's fee that the director has elected to defer under this Plan, divided by (ii) the average closing price of a share of the Company's common stock (individually, a "Share" and collectively, "Shares") for those days on which Shares were traded during the previous month, as reported on the composite tape of the New York Stock Exchange or such other primary market or stock exchange on which Shares may be traded in the future. (c) The election provided in Section 3(b) above shall be made annually by a director on or before the December 1 preceding the year of service as a director to which the election is applicable, provided that newly-elected directors may make such election within 15 days after their election to the board of directors. (d) Notwithstanding anything to the contrary in this Section 3, persons who are outside directors on the effective date of this Plan may initially make the election provided in Section 3(b) above not later than the effective date of the Plan, and the effective date of this Plan shall be deemed to be the first day of a month for purposes of crediting Units to director Accounts. 4. DIVIDEND EQUIVALENTS. As of each dividend record date --------------------- declared with respect to the Shares, the Company shall credit the Account of each outside director with an additional number of Units equal to: (a) the product of (i) the dividend per Share that is payable with respect to such dividend record date, multiplied by (ii) the number of Units credited to the director's Account as of such dividend record date; divided by ---------- (b) the closing price of a Share on the dividend record date (or if Shares were not traded on that date, on the next preceding date on which Shares were traded), as reported on the composite tape of the New York Stock Exchange or such other primary market or stock exchange on which Shares may be traded in the future. 5. DISTRIBUTION OF ACCOUNT VALUE. ----------------------------- (a) Each outside director (or in the event of the death of an outside director, the director's beneficiary), shall be entitled to receive the value of the director's Account in the manner provided in the following paragraphs (b), (c) and (d) of this Section 5. (b) Unless otherwise elected by an outside director in accordance with the provisions of Section 5(c) below, the cash value of a director's Account shall be distributed to the director or beneficiary, as the case may be, on the first day of the month following the date upon which the director ceases to be a director of the Company for any reason. (c) At any time prior to the time an outside director ceases to be a director of the Company, the director may irrevocably elect to have all amounts to which the director will be entitled under this Plan distributed in twelve or fewer equal monthly installments commencing on the first day of the month following the date on which the director ceases to be a director of the Company for any reason or on a date certain in the twelve-month period immediately following the date on which the director ceases to be a director of the Company for any reason. In the event of such an election, no interest will be paid on the amounts deferred. (d) For purposes of this Section 5, the cash value of a director's Account shall be calculated by multiplying (i) the number of Units in the Account by (ii) the average closing price of a Share during the thirty (30) trading days immediately preceding (but not including) the date on which the director ceased to be a director of the Company, as reported on the composite tape of the New York Stock Exchange or such other primary market or stock exchange on which Shares may be traded in the future. 6. BENEFICIARY DESIGNATION. ----------------------- (a) Each outside director may, from time to time, by writing filed with the Company, designate any legal or natural person or persons (who may be designated contingently or successively) to whom the cash value of the director's Account is to be distributed if the director dies prior to having received all of the amounts to which the director is entitled under Section 5 above. A beneficiary designation will be effective only if the signed form is filed with the Company while the director is alive and will cancel all beneficiary designation forms previously filed. (b) To the extent a director fails to designate a beneficiary or beneficiaries as provided in this Section 6, or if all designated beneficiaries die before the director or before the distribution of the entire cash value of the director's Account, the remaining cash value of the Account shall be distributed to the estate of the director as soon as practicable after the director's death. 2 7. FINANCIAL HARDSHIP DISTRIBUTION. The Company may ------------------------------- accelerate the distribution of a director's Account for reasons of severe financial hardship. For purposes of this Plan, severe financial hardship shall be deemed to exist in the event the Company determines that a director requires a distribution to meet immediate and significant financial needs resulting from a sudden or unexpected illness or accident of the director or a member of the director's family, loss of the director's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the director. A distribution based upon financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship. 8. TRANSFERABILITY. The interests of any director or --------------- beneficiary under this Plan are not subject to the claims of the director's creditors and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered. 9. RIGHTS ASSOCIATED WITH UNITS. A director's Account ---------------------------- shall be a memorandum account on the books of the Company and the Units credited to a director's Account shall be used solely as a device for the determination of the cash value of such Account to be distributed in accordance with this Plan. Outside directors (and their beneficiaries) shall have no rights as shareholders with respect to Units. A director's rights under this Plan are solely those of an unsecured creditor of the Company and the Company shall not be obligated to hold any cash, property or Shares in trust or as a segregated fund. Participation in this Plan shall not give any outside director the right to continue to serve as a member of the board of directors or any rights or interests other than as provided in this Plan. 10. CHANGES IN SHARES. ----------------- (a) In the event of any change in the number of outstanding Shares by reason of any stock dividend (including a stock split in the form of a stock dividend), recapitalization, merger, consolidation, exchange of shares or other similar corporate transaction in respect of Shares, the number of Units to be credited in accordance with Section 3 above, the number of Units held in each director's Account, and the amounts to be distributed in accordance with this Plan shall be appropriately adjusted to take into account any such event. (b) In the event of a distribution by the Company of stock of a subsidiary to the Company's stockholders (or similar event), the Company shall make an equivalent cash payment to each outside director participating in this Plan, taking into account the relative value of such distribution on a per Share basis and the number of Units in a director's Account. All determinations of the Company under this paragraph (b) shall be conclusive. 11. CHANGE OF CONTROL. ----------------- (a) In the event of a change of control of the Company, the cash value of a director's Account shall be distributed on the first day of the month following such change of control. For purposes of this paragraph, the value of a director's Account shall be determined in a manner consistent with Section 5(d) above, utilizing the thirty (30) trading days immediately preceding (but not including) the date of the change of control. (b) For purposes of this Plan, "change of control" shall have the same meaning as in the Company's Long-Term Incentive Plan, as may be amended from time to time. 3 12. COMPANY SUCCESSORS. This Plan shall be binding upon ------------------- any assignee or successor in interest to the Company whether by merger, consolidation or sale of all or substantially all of the Company's assets. 13. ADMINISTRATION. This Plan shall be, to the maximum -------------- extent possible, self-effectuating. This Plan shall be construed, interpreted and, to the extent required, administered by the board of directors or a committee appointed by the board of directors to act on its behalf under this Plan. Notwithstanding the foregoing, no director shall participate in any decision relating solely to that director's benefits. 14. AMENDMENT AND TERMINATION. The board of directors of ------------------------- the Company may, from time to time, amend or terminate this Plan; provided, however, that no such amendment or termination shall adversely affect the rights of any director without the director's consent with respect to Units credited to the director's Account prior to such amendment or termination. 4 EX-10.7 2 ex10p7.txt EXECUTIVE STOCK REPURCHASE PROGRAM Exhibit 10.7 GARDNER DENVER, INC. EXECUTIVE STOCK REPURCHASE PROGRAM On November 2, 1998, the Management Development and Compensation Committee of the Board of Directors approved a Stock Repurchase Program for the Company's executive staff. The purpose of this program is to provide a means for executives to sell Gardner Denver common stock, with a goal of obtaining sufficient funds to meet alternative minimum tax obligations which arise from the exercise of incentive stock options. The repurchase of these shares from the executives will also mitigate any potential disruption to an orderly trading market, which could result if the trades were effected through securities brokers, due to the Company's relatively small average trading volume. In order for the Company to engage in open market repurchases of its common stock, all material information must be thoroughly disseminated to the public. However, a sale from an executive officer to the Company is considered a transaction between two insiders. Therefore, the risk of financial loss to an outside party, if material non-public information has not been disseminated, is eliminated. Accordingly, an officer is able to sell stock to the Company during standard blackout periods, but must refrain from open market transactions during this time. Standard blackout periods occur from the end of a quarter until three days after the public release of financial results. The tentative earnings release dates for 1999 are February 3, April 21, July 21 and October 20. Other blackout periods occur when material information, such as a pending acquisition, is not publicly disseminated. To avoid the appearance of the officers "taking advantage" of the Company, repurchases will not be permitted during a blackout period if the nondisclosed information could be perceived as unfavorable news by the public. Repurchases will also not be available on days designated as Company holidays, even though such days may still be valid trading days. In order to participate in the repurchase program, an executive must notify the Vice President, Corporate Secretary, or in her absence the Vice President, Finance and CFO, of the intention to sell shares. This notification should be provided on the attached form and be accompanied by a letter from Arthur Andersen, or some other tax professional, stating that the purpose of the sale is primarily to fulfill alternative minimum tax obligations and for tax planning purposes. The executive must deliver the stock certificate(s) to the Vice President, Corporate Secretary, or her designated alternate, on the date of the sale. These certificates must represent at least the total number of shares to be sold. They should be signed in the same name as appears on the face of the certificate, with the signature guaranteed by a member of the Medallion Guaranty Program. Notarization is not acceptable. "Gardner Denver, Inc." should be inserted in the "assignee" blank on the back of the certificate. If the number of shares represented by the certificate(s) exceeds the number of shares to be sold, the Company's transfer agent, the First Chicago Trust Company of New York, will issue a new certificate reflecting the remaining shares. The new certificate will be dated as of the sale date. The seller is responsible for maintaining accurate records which trace the origin and cost basis for new certificate. Under special circumstances, the Company will accept the tender of stock electronically (i.e. via DWAC transaction) from the seller's broker. However, additional documentation and processing time will be required for this type of transaction, so the seller should plan accordingly. The sales price under this program will be the average of the high and low sales prices of the Company's common stock on the composite tape of the New York Stock Exchange on the date of the repurchase. A check will be issued by the Company within three business days of the sale. The determination to sell shares under this program is final and must be submitted either on the day of the sale or no later than prior to the initiation of trading the following day. If the following day is a holiday for trading purposes but not for the business of the Company, the seller may choose the holiday as his or her sale date, using the average high and low trading value of the previous trading date. However, once trading begins, a seller will no longer be able to refer to the previous day's average trading price as the basis for a sale. All of the executives of the Company are insiders, as defined by the Securities and Exchange Commission (the "SEC"), and therefore are obligated to satisfy the reporting requirements of Section 16 of the Securities Exchange Act. An insider is required to report the sale of securities back to the Company on a Form 5, which must be filed with the SEC within 45 days of the calendar year-end. The Vice President, Corporate Secretary will prepare the necessary form for this reporting obligation, for either the seller's signature or for signature under a previously supplied power of attorney. The seller is reminded that his or her purchase of additional Gardner Denver common stock in an open market transaction is prohibited by the Securities and Exchange Commission for six months following the date of a sale. However, upon the completion of one sale transaction, the seller may continue to sell the Company's stock, as long as blackout periods do not apply. Acquiring stock through the exercise of stock options or through contributions of stock by the Company to the seller's 401(k) account is not --- considered a "purchase" by the SEC. Furthermore, the sale of stock to the Company is not considered an open market sale transaction by the SEC. --- Proceeds from the sale of Gardner Denver common stock will be reported to the Internal Revenue Service as a sale of capital stock. The seller will be provided a Form 1099-B by the Company, summarizing the sale transactions for a tax year. Squire, Sanders & Dempsey, corporate counsel to the Company, has advised that sales under this program are not subject to reporting requirements under Rule 144 of the Securities Act of 1933. 2 EX-10.8 3 ex10p8.txt FORM OF INCENTIVE STOCK OPTION AGREEMENT Exhibit 10.8 GARDNER DENVER, INC. INCENTIVE STOCK OPTION AGREEMENT This Agreement is made between Gardner Denver, Inc., a Delaware corporation, having its principal executive office in Quincy, Illinois (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties have agreed as follows: 1. Pursuant to the Gardner Denver, Inc. Long-Term Incentive Plan, as amended, (the "Plan"), the Company grants to the Employee an incentive option to purchase the number of shares of the Company's common stock, par value $0.01 per share (the "Shares"), specified above, at the price specified above, subject to the following conditions: (a) Subject to Sections 2 and 3, the option rights shall be exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this option (the "Grant Date"), at which time such rights shall become exercisable to the extent of 33 1/3% of the aggregate number of Shares specified above, which percentage shall increase to 66 2/3% of such number after two years from the Grant Date and 100% of such number after three years from the Grant Date. (b) Subject to Sections 2 and 3, the option rights shall be exercisable only by the Employee and only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The option rights shall expire at the Expiration Date specified above, or at such earlier time as may be provided by Section 2, 3 or 13, or by cash payments made in complete or partial cancellation pursuant to Section 8, and such option rights shall not be exercisable after such expiration. 2. Option rights shall terminate if the Employee shall cease to be employed by the Company, as follows: (a) If such cessation of employment is occasioned by any reason other than retirement, disability or death, the option rights shall terminate immediately; (b) If such cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee at any time within five years following such retirement (but not after the Expiration Date) may exercise the option rights to the extent of 100% of the Shares covered by this option (notwithstanding the extent to which the Employee otherwise was entitled to exercise the same immediately prior to such retirement), and (c) If such cessation of employment is occasioned by the Employee's disability, then the Employee at any time within five years following such cessation of employment (but not after the Expiration Date) may exercise the option rights to the extent of 100% of the Shares covered by this option (notwithstanding the extent to which the Employee otherwise was entitled to exercise the same immediately prior to such cessation of employment). 3. If the Employee shall die while in the employ of the Company or shall die within the five-year period during which the option rights may be exercised following retirement or disability, then within the year next succeeding the Employee's death (but not after the Expiration Date), the person entitled by will or the applicable laws of descent and distribution may exercise the option rights to the extent of 100% of the Shares covered by this option (notwithstanding the extent to which the Employee otherwise was entitled to exercise the same immediately prior to death). 4. This option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Corporate Secretary, or if the Corporate Secretary is the employee concerned, then to the attention of the President or a Vice President) a written notice, signed by the Employee or a person entitled to exercise the option, as the case may be, of the election to exercise the option and stating the number of Shares in respect of which it is then being exercised. The option shall be deemed exercised as of the date the Company receives such notice. As an essential part of such notice, it shall be accompanied by payment of the full purchase price of the Shares then being purchased. In the event the option shall be exercised by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the option. Payment of the full purchase price may be made in (a) cash, (b) Shares, or (c) any combination of cash and Shares, provided that any Shares used by the Employee in payment of the purchase price must have been held by the Employee for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Shares as payment of the purchase price. Shares used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Shares on the composite tape of the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the option, the Company shall issue in the name of the person exercising the option, and deliver to such person, a certificate or certificates for the Shares purchased, or shall otherwise properly evidence the purchase of such Shares in the Company's stock records. The Employee shall have no rights as a stockholder in respect of any Shares as to which the option shall not have been effectively exercised as provided in this Agreement. 5. This option shall not be exercisable if such exercise would violate (a) any applicable requirement under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; (b) any applicable state securities law; or (c) any other applicable legal requirement. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance of the Shares, the delivery to the Company of a commitment in writing by the person exercising the option that at the time of such exercise it is the person's intention to acquire such Shares for the person's own account for investment only and not with a view to, or for resale in connection with, the distribution of such Shares, that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act, and that any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations under the Act. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting such commitment and the Company may refuse to permit transfer of such Shares until it has been furnished evidence satisfactory to it that no violation of the Act or the applicable rules and regulations would be involved in such transfer. 6. The Employee acknowledges that this option has been granted in anticipation of future services being rendered by the Employee to the Company. In consideration of the granting of this option by the Company, the Employee agrees to remain in the employ of the Company for a period of not less than one year from the Grant Date unless during that period the Employee's employment ceases on account of disability, retirement in accordance with a retirement plan of the Company, or with the consent of the Company. Nothing contained in this Agreement shall limit or restrict any right the Company would otherwise have to terminate the employment of the Employee. 7. This option and the related option rights are not assignable or transferable or subject to any disposition of the Employee otherwise than by will or by the laws of descent and distribution. 8. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all the assets and business of the Company are to be sold, or (iv) there occurs a "change of control" of the Company, then the committee of the Board of Directors that administers the Plan (the "Committee") may, in its sole discretion, with respect to any or all options then outstanding under this Agreement, both (a) on or at any time prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and upon or at any time after a change of control, cause the option or any portion of the option to become exercisable in full immediately regardless of any provisions in this Agreement concerning exercisability and (b) at any time during the 20-day period ending on the effective date of such merger, consolidation, dissolution or sale or during the 20-day period beginning on the date of a change of control or, if later, the date the Company has notice of a change of control, cancel any option in whole or in part by payment in cash to the Employee of an amount equal to the excess, but only if the amount is positive, of the fair market value of the Company's Shares on the date of the cancellation over the option price per Share times the number of Shares covered by the option or portion of the option so canceled. For purposes of this Agreement, a "change of control" of the Company shall be as defined in Section 2 of the Plan. 9. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered employment by the Company. 2 10. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 11. The Employee agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to the exercise of this option if such disposition occurs within one year from the acquisition of the Shares. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Employee. 12. This Agreement and the option granted under this Agreement shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions of the Plan shall govern if there is any inconsistency between this Agreement and the Plan. 13. If the Employee, as individual or as a partner, employee, agent, advisor, consultant or in any other capacity of or to any person, firm, corporation or other entity, directly or indirectly, carries on any business, or becomes involved in any business activity, competitive with the Company or any subsidiary, the Committee in its sole discretion, may require the Employee to forfeit immediately, without consideration from the Company, any portion of the option (including the right to purchase the underlying shares of Common Stock relating to such portion) which was not exercised prior to the event in violation of this Section 13. In such event, such portion of the option shall immediately become void and of no force and effect. 3 EX-10.9 4 ex10p9.txt FORM OF NONSTATUTORY STOCK OPTION AGREEMENT Exhibit 10.9 GARDNER DENVER, INC. NONSTATUTORY STOCK OPTION AGREEMENT This Agreement is made between Gardner Denver, Inc., a Delaware corporation, having its principal executive office in Quincy, Illinois (the "Company"), and the undersigned, an employee of the Company or a subsidiary of the Company (the "Employee"). The parties have agreed as follows: 1. Pursuant to the Gardner Denver, Inc. Long-Term Incentive Plan, as amended, (the "Plan"), the Company grants to the Employee a nonstatutory option to purchase the number of shares of the Company's common stock, par value $0.01 per share (the "Shares"), specified above, at the price specified above, subject to the following conditions: (a) Subject to Sections 2 and 3, the option rights shall be exercisable only if and after the Employee shall have remained in the employ of the Company for one year from the date of grant of this option (the "Grant Date"), at which time such rights shall become exercisable to the extent of 33 1/3% of the aggregate number of Shares specified above, which percentage shall increase to 66 2/3% of such number after two years from the Grant Date and 100% of such number after three years from the Grant Date. (b) Subject to Sections 2, 3 and 7, the option rights shall be exercisable only by the Employee and only if the Employee has remained continuously in the employ of the Company from the Grant Date. (c) The option rights shall expire at the Expiration Date specified above, or at such earlier time as may be provided by Section 2, 3 or 13, or by cash payments made in complete or partial cancellation pursuant to Section 8, and such option rights shall not be exercisable after such expiration. 2. Option rights shall terminate if the Employee shall cease to be employed by the Company, as follows: (a) If such cessation of employment is occasioned by any reason other than retirement, disability or death, the option rights shall terminate immediately; (b) If such cessation of employment is occasioned by retirement in accordance with any retirement plan of the Company then in effect, then the Employee at any time within five years following such retirement (but not after the Expiration Date) may exercise the option rights to the extent of 100% of the Shares covered by this option (notwithstanding the extent to which the Employee otherwise was entitled to exercise the same immediately prior to such retirement); and (c) If such cessation of employment is occasioned by the Employee's disability, then the Employee at any time within five years following such cessation of employment (but not after the Expiration Date) may exercise the option rights to the extent of 100% of the Shares covered by this option (notwithstanding the extent to which the Employee otherwise was entitled to exercise the same immediately prior to such cessation of employment). 3. If the Employee shall die while in the employ of the Company or shall die within the five-year period during which the option rights may be exercised following retirement or disability, then within the year next succeeding the Employee's death (but not after the Expiration Date), the person entitled by will or the applicable laws of descent and distribution may exercise the option rights to the extent of 100% of the Shares covered by this option (notwithstanding the extent to which the Employee otherwise was entitled to exercise the same immediately prior to death). 4. This option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Corporate Secretary, or if the Corporate Secretary is the employee concerned, then to the attention of the President or a Vice President) a written notice, signed by the Employee or a person entitled to exercise the option, as the case may be, of the election to exercise the option and stating the number of Shares in respect of which it is then being exercised. The option shall be deemed exercised as of the date the Company receives such notice. As an essential part of such notice, it shall be accompanied by (a) payment of the full purchase price of the Shares then being purchased and (b) satisfaction, or agreement with the Company as to the manner of satisfaction, of any taxes required by law to be withheld due to the exercise of the option, including an exercise by a transferee to whom the Employee has transferred the option in accordance with Section 7. In the event the option shall be exercised by any person other than the Employee, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the option. Payment of the full purchase price may be made in (a) cash, (b) Shares, or (c) any combination of cash and Shares, provided that any Shares used by the Employee in payment of the purchase price must have been held by the Employee for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Shares as payment of the purchase price. Shares used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Shares on the composite tape of the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the option, the Company shall issue in the name of the person exercising the option, and deliver to such person, a certificate or certificates for the Shares purchased, or shall otherwise properly evidence the purchase of such Shares in the Company's stock records. The Employee shall have no rights as a stockholder in respect of any Shares as to which the option shall not have been effectively exercised as provided in this Agreement. 5. This option shall not be exercisable if such exercise would violate (a) any applicable requirement under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; (b) any applicable state securities law; or (c) any other applicable legal requirement. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance of the Shares, the delivery to the Company of a commitment in writing by the person exercising the option that at the time of such exercise it is the person's intention to acquire such Shares for the person's own account for investment only and not with a view to, or for resale in connection with, the distribution of such Shares, that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act, and that any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations under the Act. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting such commitment and the Company may refuse to permit transfer of such Shares until it has been furnished evidence satisfactory to it that no violation of the Act or the applicable rules and regulations would be involved in such transfer. 6. The Employee acknowledges that this option has been granted in anticipation of future services being rendered by the Employee to the Company. In consideration of the granting of this option by the Company, the Employee agrees to remain in the employ of the Company for a period of not less than one year from the Grant Date unless during that period the Employee's employment ceases on account of disability, retirement in accordance with a retirement plan of the Company, or with the consent of the Company. Nothing contained in this Agreement shall limit or restrict any right the Company would otherwise have to terminate the employment of the Employee. 7. This option shall be assignable and transferable by will or by the laws of descent and distribution. In addition, the Employee shall have the right, subject to the provisions of this Section 7, to transfer all or any portion of the option granted under this Agreement, for estate planning purposes, to (a) the Employee's spouse, children, grandchildren, parents, siblings, stepchildren, stepgrandchildren or in-laws ("Family Members"), (b) entities that are exclusively family-related, including trusts for the exclusive benefit of Family Members and limited partnerships or limited liability companies in which Family Members are the only partners or members, or (c) such other persons or entities specifically approved by the committee of the Board of Directors that administers the Plan (the "Committee"). Any option or portion of an option transferred by the Employee in accordance with this Section 7 shall remain subject to the same terms and conditions as were applicable immediately prior to the transfer, including those provisions regarding exercisability of the option following the cessation of employment of the Employee by the Company and the death of the Employee, except that no transferee may further transfer an option or portion of an option transferred by the Employee in accordance with this Section 7, other than by will or the laws of descent and distribution. In order to effect a transfer in accordance with this Section 7, the Employee shall deliver to the Company (in the manner set forth in Section 4) a Notice of Transfer of Option substantially in the form attached to this Agreement. 8. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all the assets and business of the Company are to be sold, or (iv) there occurs a "change of control" of the Company, then the Committee may, in its sole discretion, with respect to any or all options then outstanding under this Agreement, both (a) on or at any time prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and upon or at any time after a change of control, cause the option or any portion of the option to become exercisable in full immediately regardless of any provisions in this Agreement concerning exercisability and (b) at any time during the 20-day period ending on the effective date of such merger, consolidation, dissolution or sale or during the 20-day period beginning on the date of a change of control or, if later, the date the Company has notice of a change of control, cancel any option in whole or in part by payment in cash to the Employee of an amount equal to the excess, but only if the amount is positive, of the fair market value of the Company's Shares on the date of the cancellation over the option price per Share times the number of Shares covered by the option or portion of the option so canceled. For purposes of this Agreement, a "change of control" of the Company shall be as defined in Section 2 of the Plan. 9. For purposes of this Agreement, employment by a parent or subsidiary of or a successor to the Company shall be considered to be employment by the Company. 10. The Committee shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 11. The Employee agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to the exercise of this option if such disposition occurs within one year from the acquisition of the Shares. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Employee. 12. This Agreement and the option granted under this Agreement shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions of the Plan shall govern if there is any inconsistency between this Agreement and the Plan. 2 13. If the Employee, as individual or as a partner, employee, agent, advisor, consultant or in any other capacity of or to any person, firm, corporation or other entity, directly or indirectly, carries on any business, or becomes involved in any business activity, competitive with the Company or any subsidiary, the Committee in its sole discretion, may require the Employee to forfeit immediately, without consideration from the Company, any portion of the option (including the right to purchase the underlying shares of Common Stock relating to such portion) which was not exercised prior to the event in violation of this Section 13. In such event, such portion of the option shall immediately become void and of no force and effect. 3 EX-10.10 5 ex10p10.txt FORM OF NONEMPLOYEE DIRECTOR STOCK OPTION AGREE. Exhibit 10.10 GARDNER DENVER, INC. NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT This Agreement is made between Gardner Denver, Inc., a Delaware corporation, having its principal executive office in Quincy, Illinois (the "Company"), and the undersigned, a nonemployee director of the Company (the "Director"). The parties have agreed as follows: 1. Pursuant to the Gardner Denver, Inc. Long-Term Incentive Plan, as amended, (the "Plan"), the Company grants to the Director a nonstatutory option to purchase the number of shares of the Company's common stock, par value $0.01 per share (the "Shares"), specified above, at the price specified above, subject to the following conditions: (a) Subject to Sections 2 and 6, the option rights are fully exercisable on the first anniversary of the date of grant of this option (the "Grant Date"). (b) During the lifetime of the Director, the option rights are exercisable only by the Director or the Director's legal representative. (c) The option rights shall expire at the Expiration Date specified above, or at such earlier time as may be provided by Sections 2 and 10, or by cash payments made in cancellation pursuant to Section 6, and such option rights shall not be exercisable after such expiration. 2. Subject to Section 10, if the Director shall cease to serve as a director of the Company by reason of retirement in accordance with any retirement plan or policy of the Company then in effect or by reason of disability during service as a director, option rights not otherwise fully exercisable at the time of such retirement or cessation of service as a director due to disability shall become fully exercisable upon such retirement or cessation of service, and such option rights shall be exercisable for five years following such retirement or cessation of service (but not after the Expiration Date). Subject to Section 10, if the Director shall die during service as a director or shall die within the five-year period during which the option rights may be exercised following retirement or disability, option rights not otherwise fully exercisable at the time of the death of the Director shall become fully exercisable upon such death, and such option rights shall be exercisable for one year following such death (but not after the Expiration Date). Subject to Section 10, if after the expiration of one year from the Grant Date, the Director shall cease to serve as a director of the Company for any reason other than death, disability or retirement, the option rights shall continue to be exercisable for a period of 90 days after such cessation of service (but not after the Expiration Date). 3. This option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Corporate Secretary) a written notice, signed by the Director or a person entitled to exercise the option by will or the laws of descent and distribution, as the case may be, of the election to exercise the option and stating the number of Shares in respect of which it is then being exercised. The option shall be deemed exercised as of the date the Company receives such notice. As an essential part of such notice, it shall be accompanied by payment of the full purchase price of the Shares then being purchased. In the event the option shall be exercised by any person other than the Director, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the option. Payment of the full purchase price may be made in (a) cash, (b) Shares, or (c) any combination of cash and Shares, provided that any Shares used by the Director in payment of the purchase price must have been held by the Director for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Shares as payment of the purchase price. Shares used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Shares on the composite tape of the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the option, the Company shall issue in the name of the person exercising the option, and deliver to such person, a certificate or certificates for the Shares purchased, or shall otherwise properly evidence the purchase of such Shares in the Company's stock records. The Director shall have no rights as a stockholder in respect of any Shares as to which the option shall not have been effectively exercised as provided in this Agreement. 4. This option shall not be exercisable if such exercise would violate (a) any applicable requirement under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; (b) any applicable state securities law; or (c) any other applicable legal requirement. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance of the Shares, the delivery to the Company of a commitment in writing by the person exercising the option that at the time of such exercise it is the person's intention to acquire such Shares for the person's own account for investment only and not with a view to, or for resale in connection with, the distribution of such Shares, that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act, and that any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations under the Act. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting such commitment and the Company may refuse to permit transfer of such Shares until it has been furnished evidence satisfactory to it that no violation of the Act or the applicable rules and regulations would be involved in such transfer. 5. This option and the related option rights are not assignable or transferable or subject to any disposition of the Director otherwise than by will or by the laws of descent and distribution. 6. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all the assets and business of the Company are to be sold, or (iv) there occurs a "change of control" of the Company, then the option rights not otherwise exercisable shall become fully exercisable. In the case of a change of control, (i) the Company shall make payment in cash to the Director in an amount equal to the appreciation in the value of the option from the purchase price specified in this Agreement to the "change of control price"; (ii) such cash payment shall be due and payable, and shall be paid by the Company, immediately upon the occurrence of the change of control; and (iii) after such payment, the Director shall have no further rights under this Agreement with respect to option rights outstanding at the time of the change of control. For purposes of this Agreement, a "change of control" and the "change of control price" shall be as defined in Section 2 of the Plan. 7. The committee of the Board of Directors that administers the Plan (the "Committee") shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 8. The Director agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to the exercise of this option if such disposition occurs within one year from the acquisition of the Shares. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Director. 9. This Agreement and the option granted under this Agreement shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions of the Plan shall govern if there is any inconsistency between this Agreement and the Plan. 10. If the Director, as individual or as a partner, employee, agent, advisor, consultant or in any other capacity of or to any person, firm, corporation or other entity, directly or indirectly, carries on any business, or becomes involved in any business activity, competitive with the Company or any subsidiary, the Committee in its sole discretion, may require the Director to forfeit immediately, without consideration from the Company, any portion of the option (including the right to purchase the underlying shares of Common Stock relating to such portion) which was not exercised prior to the event in violation of this Section 10. In such event, such portion of the option shall immediately become void and of no force and effect. Document Name: GD - Nonemployee Director Stock Option Agreement Library: Cleveland; Document #: 200655v1 2 EX-13 6 ex13.txt PORTIONS OF THE 2000 ANNUAL REPORT FINANCIAL HISTORY
(dollars in thousands, except per share amounts) Year ended December 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA (1): Revenues $379,358 327,067 386,859 293,134 219,197 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 268,290 226,550 256,936 194,438 150,702 Depreciation and amortization 15,881 14,222 12,978 9,662 8,097 Selling and administrative expenses 59,784 53,080 52,986 39,731 30,169 Interest expense 7,669 5,934 4,849 3,937 3,104 Other income, net (2,160) (1,876) (784) (785) (1,314) - --------------------------------------------------------------------------------------------------------------------------------- 349,464 297,910 326,965 246,983 190,758 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 29,894 29,157 59,894 46,151 28,439 Provision for income taxes 11,210 11,109 23,089 18,500 11,533 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 18,684 18,048 36,805 27,651 16,906 ================================================================================================================================= Basic earnings per share $ 1.22 1.20 2.29 1.84 1.16 ================================================================================================================================= Diluted earnings per share $ 1.21 1.18 2.22 1.74 1.11 ================================================================================================================================= December 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Total assets $403,881 379,419 342,130 268,269 235,756 Long-term debt (excluding current maturities) 115,808 114,200 81,058 51,227 55,069 Other long-term obligations 48,682 53,001 55,128 56,237 57,289 Stockholders' equity 171,148 152,609 142,686 103,611 74,118 ================================================================================================================================= This Income Statement and Balance Sheet Data should be read in conjunction with Management's Discussion and Analysis and the Consolidated Financial Statements and notes thereto. (1) Certain prior year amounts have been reclassified to conform with current year presentation. See Note 1 to the Consolidated Financial Statements.
12 MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto. OVERVIEW The Company's operations are organized into two reportable segments - Compressed Air Products and Petroleum Products. In the Compressed Air Products segment, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, sliding vane and centrifugal air compressors; positive displacement and centrifugal blowers and water jet pumps and systems. The largest markets for Gardner Denver's compressed air products are durable goods manufacturers; process industries such as petroleum, primary metals, pharmaceuticals, food and paper; original equipment manufacturers; manufacturers of carpet cleaning equipment, pneumatic conveying equipment and dry bulk trailers; wastewater treatment facilities; industrial cleaning and maintenance; and automotive service centers. Revenues of the Compressed Air Products segment constituted approximately 85% of total revenues in 2000. In the Petroleum Products segment, the Company designs, manufactures, markets and services a diverse group of pumps and related aftermarket parts used in oil and natural gas production, well servicing and stimulation and oil and gas drilling. Typical applications include oil transfer, saltwater disposal, ammine pumping for gas processing, enhanced oil recovery, hydraulic power and other liquid transfer applications. Revenues of the Petroleum Products segment constituted approximately 15% of total revenues in 2000. The Company sells its products through independent distributors, sales representatives and directly to original equipment manufacturers, engineering firms and end users. The Company acquired CRS Power Flow, Inc. ("CRS") in July 2000 and Jetting Systems & Accessories, Inc. ("JSA") in April 2000. CRS and JSA are located in Houston, Texas, and both manufacture aftermarket products for the water jetting industry. These two acquisitions complement the Company's product offering for the water jetting market and further leverage Gardner Denver's commitment to being a full-service provider in the water jetting industry. In January 2000, the Company acquired Invincible Airflow Systems, Co. ("Invincible"). Invincible, located in Baltic, Ohio, manufactures single and fabricated multistage centrifugal blowers and engineered vacuum systems. Invincible extends Gardner Denver's product offering for the industrial cleaning market and introduces the Company's centrifugal blowers to new markets. In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"). Air Relief, located in Mayfield, Kentucky, is an independent provider of replacement parts and service for centrifugal compressors. Air Relief enhanced Gardner Denver's ability to penetrate the centrifugal compressor market by adding key centrifugal compressor engineering, assembly, sales and service capabilities. In April 1999, the Company acquired Allen-Stuart Equipment Co., Inc. ("Allen-Stuart"). Allen-Stuart, located in Houston, Texas, designs and fabricates custom-engineered packages for compressor and blower equipment in air and gas applications. Allen-Stuart serves a wide variety of industrial markets, including petrochemical, power generation, oil and natural gas production and refining. The addition of Allen-Stuart enhanced Gardner Denver's ability to supply engineered packages, incorporating the wide range of compressor and blower products manufactured by Gardner Denver. It also enabled Gardner Denver to establish a service center near key Southwestern customers. Also in April 1999, the Company acquired Butterworth Jetting Systems, Inc. ("Butterworth"). Butterworth, also located in Houston, Texas, is a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market. Applications in this market include runway and shiphull cleaning, concrete demolition and metal surface preparation. This acquisition, which was renamed Gardner Denver Water Jetting Systems, Inc., enabled Gardner Denver to expand its position in the rapidly-growing water jet market. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schopfheim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expanded the Company's manufacturing presence in Europe and provided distribution channels for positive displacement blowers, which are produced in the United States. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opened new market opportunities for Gardner Denver products and expanded the range of reciprocating compressors available to existing distributors. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"). Geoquip, a leading manufacturer of pumps, is located in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhanced the Gardner Denver well servicing product line and expanded the Company's presence in remanufacturing and repair services. All acquisitions noted above, except for Geoquip, are included in the Company's Compressed Air Products segment. Geoquip is included in the Company's Petroleum Products segment. The acquisitions completed in 2000, 1999 and 1998 provide growth opportunities through synergistic product lines and domestic and international market penetration. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS The following table sets forth percentage relationships to revenues of certain income statement items for the years presented.
Year ended December 31, ----------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------- REVENUES 100.0% 100.0 100.0 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 70.7 69.3 66.4 Depreciation and amortization 4.2 4.4 3.4 Selling and administrative expenses 15.8 16.2 13.7 Interest expense 2.0 1.8 1.2 Other income, net (0.6) (0.6) (0.2) - --------------------------------------------------------------------------------------------------- 92.1 91.1 84.5 - --------------------------------------------------------------------------------------------------- Income before income taxes 7.9 8.9 15.5 Provision for income taxes 3.0 3.4 6.0 - --------------------------------------------------------------------------------------------------- NET INCOME 4.9% 5.5 9.5 ===================================================================================================
YEAR ENDED DECEMBER 31, 2000, COMPARED WITH YEAR ENDED DECEMBER 31, 1999 REVENUES Revenues increased $52.3 million (16%) to $379.4 million in 2000, compared to $327.1 million in 1999. Excluding incremental revenue from acquisitions completed since March of 1999, which added $27.9 million to compressor revenues in 2000, revenues increased $24.4 million (7%) as compared to 1999. Revenues in the Compressed Air Products segment increased $24.6 million (8%) to $321.7 million in 2000, compared to $297.1 million in 1999, due to incremental revenues from acquisitions. Excluding incremental revenue from acquisitions and the negative impact of unfavorable foreign currency exchange rates (3%), compressed air product revenues increased $4.5 million (2%) from 1999 due to increased sales of rotary screw and lower horsepower reciprocating compressors. The significant increase in the price of oil and natural gas in 1999 and 2000 caused an increase in demand for well servicing pumps and drilling pumps in 2000. As a result, petroleum revenues increased $27.6 million (92%) to $57.6 million in 2000, compared to $30.0 million in 1999. COSTS AND EXPENSES Gross margin (defined as revenues less cost of sales) in 2000 increased $10.6 million (11%) to $111.1 million, from $100.5 million in 1999. This increase resulted primarily from the higher revenue volume, offset partially by a decrease in the gross margin as a percentage of revenues (gross margin percentage). Gross margin percentage decreased to 29.3% in 2000 from 30.7% in 1999, principally attributable to an unfavorable sales mix (including a lower proportion of aftermarket products in both segments), increased manufacturing overhead spending and increased manufacturing variances on well servicing pumps and water jetting related products. In 2000, gross margin was enhanced $0.7 million as a result of the liquidation of LIFO inventory layers, compared to $0.4 million in 1999. Depreciation and amortization increased 12% to $15.9 million in 2000, compared to $14.2 million in 1999. The increase in depreciation and amortization expense was due to goodwill amortization associated with acquisitions and ongoing depreciation from capital programs to reduce costs, improve efficiency and expand capacity. Depreciation and amortization expense, as a percentage of revenues, was 4.2% in 2000 compared to 4.4% in 1999 due to higher revenues. Selling and administrative expenses increased in 2000 by 13% to $59.8 million from $53.1 million for 1999. Excluding the impact of acquisitions, selling and administrative expenses increased $2.4 million (5%) from 1999 due to expenses stemming from the higher revenue volume such as commissions, payroll and customer service initiatives. As a percentage of revenues, selling and administrative expenses were 15.8% in 2000, compared to 16.2% in 1999, due to higher revenues. Compressed Air Products' operating earnings (defined as revenues less cost of sales, depreciation and amortization, and selling and administrative expenses) decreased $0.5 million (2%) to $30.1 million, compared to $30.6 million in 1999. This decline was due to an unfavorable sales mix, increased manufacturing overhead spending, increased manufacturing variances on water jetting related products and increased commission, payroll and customer service initiatives, as noted above. As a percentage of revenues, operating earnings declined to 9.4% in 2000, compared to 10.3% in 1999. 14 This decrease is attributable to the factors noted above and the effect of recently acquired operations that are currently generating lower operating earnings (after amortization of goodwill associated with the acquisitions) as a percentage of revenues, than the Company's previously existing operations. Operating earnings for the Petroleum Products segment increased $2.7 million to $5.3 million in 2000, a 104% increase from $2.6 million in 1999, due to higher revenues. As a percentage of revenues, operating earnings for this segment increased to 9.2% in 2000, compared to 8.7% in 1999. The positive impact from leveraging the segment's fixed and semi- fixed costs over a higher revenue base was partially offset by an unfavorable sales mix (including an increased proportion of well servicing and stimulation pumps as opposed to higher margin replacement parts) and increased manufacturing variances on well servicing pumps. Interest expense increased $1.7 million (29%) to $7.7 million for 2000, compared to $5.9 million in 1999 due primarily to higher average debt outstanding in 2000, combined with higher average interest rates. The average interest rate for 2000 was 6.3%, compared to 5.9% for 1999. See Note 9 to the Consolidated Financial Statements for further information on the Company's borrowing arrangements. Other income, net in 2000, includes $1.0 million as a result of litigation settlement proceeds received in the fourth quarter, a $0.7 million gain from the first quarter sale of the Company's idle facility in Syracuse, New York, and a fourth quarter $1.5 million charge to write-off expenses associated with an unconsummated acquisition. The increase in other income, net from 1999 to 2000, is principally the result of these three items. INCOME Income before income taxes increased $0.7 million (3%) to $29.9 million in 2000, from $29.2 million in 1999. This increase was primarily the result of higher revenues partially offset by the lower gross margin percentage and increased selling and administrative expenses in 2000, as discussed above. The provision for income taxes increased by $0.1 million to $11.2 million in 2000, compared to $11.1 million in 1999, as a result of the higher income before taxes partially offset by a lower overall effective tax rate. The Company's effective tax rate was 37.5% in 2000 compared to 38.1% in 1999. The lower effective tax rate in 2000 was primarily due to increased savings from the Company's foreign sales corporation and the implementation of other tax strategies. Net income increased $0.6 million (4%) to $18.7 million ($1.21 diluted earnings per share) in 2000 compared to $18.0 million ($1.18 diluted earnings per share) in 1999. In 2000, net income included $0.4 million in after-tax LIFO income ($0.03 diluted earnings per share), compared with $0.3 million ($0.02 diluted earnings per share) in 1999. Excluding the after-tax benefit of LIFO income, net income increased primarily due to the factors that resulted in the increased income before taxes noted above. Acquisitions completed since the beginning of 1999 were slightly accretive to the Company's net income in 2000. OUTLOOK Demand for petroleum products is related to market expectations for oil and natural gas prices. Orders for petroleum products were $62.3 million in 2000, an increase of $33.1 million (113%), compared to $29.2 million in 1999. Order backlog for the Petroleum Products segment was $12.0 million at December 31, 2000 compared to $6.5 million as of December 31, 1999, representing an 85% increase. Increases in demand for these products are dependent upon sustained appreciation in oil and natural gas prices, which the Company cannot predict. However, the price of oil increased significantly in late 1999 and was sustained through 2000, and the Company has experienced appreciable improvement in orders for well servicing and drilling pumps. The Company believes that if oil and natural gas prices remain near current levels, and day rates and the rig count continue to increase, demand for well servicing and drilling pumps will continue to improve in 2001. In 2000, orders for compressed air products increased $28.2 million (10%) to $317.7 million, compared to $289.5 million in 1999. Order backlog for the Compressed Air Products segment was $48.3 million as of December 31, 2000, compared to $47.4 million as of December 31, 1999. The increase in orders for this segment was due to acquisitions and growth in our European rotary screw compressor and domestic lower horsepower reciprocating compressor order levels, partially offset by unfavorable foreign currency exchange rates. Order backlog is only up modestly due to the growth in orders noted above offset by unfavorable foreign currency rates, a reduction in manufacturing lead times and increased inventory levels on certain products. Because air is often used as a fourth utility in the manufacturing process, demand for compressed air products is generally correlated to manufacturing capacity utilization rates and the rate of change of industrial equipment production. These indicators have been relatively weak in both 2000 and 1999. Over longer time periods, demand also follows the economic growth patterns indicated by the rates of change in the Gross Domestic Product, which has also slowed in the second half of 2000 and early 2001. As a result, orders for compressed air products are anticipated to remain flat or grow only modestly in 2001. At present, the Company anticipates that the increases in demand for petroleum products combined with ongoing cost reduction efforts and the financial benefits of completing acquisition integration projects will enhance profitability in 2001. Based upon the recent activity level in our petroleum products segment, the Company's diluted earnings per share, excluding the effect of any new acquisitions, are anticipated to increase approximately 15% in 2001 compared to 2000 if oil and natural gas prices remain near current levels. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998 REVENUES Revenues decreased $59.8 million (15%) to $327.1 million in 1999, compared to $386.9 million in 1998. Excluding incremental revenue from acquisitions completed since January 1998, which added $27.6 million to compressor revenues in 1999, revenues decreased $87.4 million (23%) as compared to 1998. Revenues in the Compressed Air Products segment decreased $2.6 million (1%) to $297.1 million in 1999, compared to $299.7 million in 1998. Excluding incremental revenue from acquisitions, compressed air product revenues decreased $30.2 million (10%) from 1998. Reduced standard industrial compressor and engineered package revenues resulted primarily from a declining rate of growth in industrial production and lower manufacturing capacity utilization in the United States, which has occurred since the fourth quarter of 1997, and a softer European economy in 1999. The significant decline in the price of oil in 1998 and early 1999 caused a reduction in demand for drilling and well servicing pumps in 1999. As a result, petroleum revenues declined $57.2 million (66%) to $30.0 million in 1999, compared to $87.2 million in 1998 when revenues were generated through production from the order backlog. COSTS AND EXPENSES Gross margin (defined as revenues less cost of sales) in 1999 decreased $29.4 million (23%) to $100.5 million from $129.9 million in 1998. This reduction resulted primarily from the lower revenue volume, compounded by a decrease in the gross margin as a percentage of revenues (gross margin percentage). Gross margin percentage decreased to 30.7% in 1999 from 33.6% in 1998, principally attributable to three factors. First, acquisitions negatively affected the gross margin percentage as these companies, in the aggregate, generated lower gross margins than the Company's previously existing operations. Second, the negative impact of decreased leverage of production overhead costs over a lower revenue base was only partially offset by cost reduction efforts and increased operating efficiencies. Finally, gross margin was negatively impacted by a significantly lower LIFO liquidation benefit, as smaller reductions in LIFO inventory levels were realized in 1999 compared to 1998. In 1999, gross margins were enhanced $0.4 million as a result of the liquidation of LIFO inventory layers, compared to $4.5 million in 1998. Depreciation and amortization increased 10% to $14.2 million in 1999, compared to $13.0 million in 1998. The increase in depreciation and amortization expense was due to goodwill amortization associated with acquisitions and ongoing capital expenditures. Depreciation and amortization expense, as a percentage of revenues, increased to 4.4% in 1999 from 3.4% in 1998. This percentage increase was due to the factors noted above, combined with the effect of lower revenues. Selling and administrative expenses increased slightly in 1999 to $53.1 million from $53.0 million in 1998. Incremental expenses of $3.6 million related to acquisitions were more than offset by decreases in manpower levels and discretionary spending. As a percentage of revenues, selling and administrative expenses were 16.2% in 1999, compared to 13.7% in 1998. This percentage increase was primarily due to the decrease in revenues and the addition of acquisitions referred to above, which, in the aggregate, have higher selling and administrative expenses relative to sales than the Company's previously existing operations. Compressed Air Products' operating earnings decreased $12.0 million (28%) to $30.6 million, compared to $42.6 million in 1998. This decline was due to the revenue reduction, the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base and the effect of newly acquired operations that currently generate lower operating earnings (after amortization of goodwill associated with the acquisitions), as a percentage of revenues, than the Company's previously existing operations. Operating earnings were also negatively impacted by an increased allocation of shared costs since the segment's revenues represented a greater percentage of the Company's total revenues in 1999 as compared to 1998, and a reduced benefit resulting from the liquidation of LIFO inventory levels. Manpower reductions, reduced discretionary spending and other cost reduction efforts partially offset these negative factors. As a percentage of revenues, operating earnings declined to 10.3% in 1999 compared to 14.2% in 1998. Operating earnings for the Petroleum Products segment decreased $18.8 million (88%) to $2.6 million in 1999 from $21.4 million in 1998. This decline was primarily attributable to the revenue reduction, the negative impact of decreased leverage of the segment's fixed and semi- fixed costs over a lower revenue base, and a reduced benefit resulting from the liquidation of LIFO inventory levels, partially offset by manpower reductions, reduced discretionary spending and other cost reduction efforts. As a percentage of revenues, operating earnings for this segment declined to 8.7% in 1999, compared to 24.5% in 1998. Interest expense increased $1.1 million (22%) to $5.9 million for 1999, compared to $4.8 million in 1998, due primarily to higher average debt outstanding in 1999. The average interest rate for 1999 was 5.9%, compared to 5.8% for 1998. Other income, net increased $1.1 million (139%) to $1.9 million in 1999 due to foreign currency transaction gains on investments and higher interest income. 16 INCOME Income before income taxes declined $30.7 million (51%) to $29.2 million in 1999 from $59.9 million in 1998. This decrease was primarily the result of lower revenues and reduced gross margins in 1999 partially offset by higher other income, net, as discussed above. The provision for income taxes decreased by $12.0 million to $11.1 million in 1999 compared to $23.1 million in 1998, as a result of the lower income before taxes and a lower overall effective tax rate. The Company's effective tax rate was 38.1% in 1999 compared to 38.6% in 1998. The lower effective tax rate in 1999 was primarily due to increased savings from the Company's foreign sales corporation and the implementation of other tax strategies. Net income decreased $18.8 million (51%) to $18.0 million ($1.18 diluted earnings per share) in 1999 compared to $36.8 million ($2.22 diluted earnings per share) in 1998. In 1999, net income included $0.3 million in after-tax LIFO income ($0.02 diluted earnings per share), compared with $2.8 million ($0.17 diluted earnings per share) in 1998. Excluding the after-tax benefit of LIFO income, net income declined $16.3 million (48%), primarily due to the revenue reduction and less leverage of fixed costs over lower production volume, partially offset by lower income taxes. Acquisitions completed since January 1998 were slightly accretive to the Company's net income in 1999. LIQUIDITY AND CAPITAL RESOURCES OPERATING WORKING CAPITAL During 2000, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $0.6 million. Excluding acquisitions and the impact of changes in foreign currency exchange rates, operating working capital increased $1.2 million due to an increase in receivables, partially offset by a decrease in inventory and an increase in accounts payable. These changes in receivables and inventory are a direct result of the increased sales volume in the fourth quarter of 2000. The increase in accounts payable is primarily attributable to increased purchases for production of petroleum products and expenses related to an unconsummated acquisition. CASH FLOWS During 2000, the Company generated cash flows from operations totaling $31.1 million, an increase of $4.5 million (17%) compared to 1999. This increase was primarily the result of a more favorable change in operating working capital as compared to 1999. Cash flows from investing activities included $3.4 million received upon settlement of foreign currency forward contracts used to hedge foreign currency translation risk associated with the Company's investment in its Finnish subsidiary. The increase of $1.7 million in cash received from these forward contracts over the prior year is due to more significant fluctuations in the Finnish Maarka to U.S. dollar exchange rates in 2000. During 2000, the Company also had net borrowings of $2.2 million under its credit facilities. Cash generated from operating and investing activities, along with net borrowings were used to fund acquisitions valued at $20.3 million (net of cash), fund capital projects and repurchase shares of the Company's common stock. The cash flows provided by operating and financing activities and used for investing activities resulted in a net cash increase of $2.9 million for 2000. CAPITAL EXPENDITURES AND COMMITMENTS Capital projects to reduce costs and increase production capacity, operating efficiency and product quality resulted in expenditures of $13.5 million in 2000, compared to $11.9 million in 1999. This increase was primarily due to timing of capital projects. Commitments for capital expenditures at December 31, 2000 totaled $4.4 million. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future. In October 1998, Gardner Denver's Board of Directors authorized the repurchase of up to 1,600,000 shares of the Company's common stock to be used for general corporate purposes. Approximately 200,000 shares remain available for repurchase under this program. The Company has also established a Stock Repurchase Program for its executive officers to provide a means for them to sell Gardner Denver common stock and obtain sufficient funds to meet alternative minimum tax obligations which arise from the exercise of incentive stock options. During 2000, 37,000 shares were repurchased under these repurchase programs at a cost of $0.7 million. As of December 31, 2000, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase programs. In 2000, the Company also acquired 16,454 shares of its common stock, valued at $0.3 million, which were tendered for the exercise of stock options. LIQUIDITY During 1998, the Company entered into a new revolving line of credit agreement with an aggregate $125 million borrowing capacity (the "Credit Line") and terminated the previous line of credit. On December 31, 2000, the Credit Line had an outstanding balance of $81.1 million, leaving $43.9 million available for future use or to issue as letters of credit. The Credit Line requires no principal payments during the term of the agreement, which expires in January 2003. The Company's borrowing arrangements are generally unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of its credit arrangements, other than customary covenants regarding certain earnings, liquidity and capital ratios. Management currently expects the Company's cash flows in 2001 to be sufficient to fund its scheduled debt service and provide required resources for working capital and capital investments. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS MARKET RISK The Company is exposed to market risk related to changes in interest rates as well as European and other foreign currency exchange rates, and selectively uses derivative financial instruments, including forwards and swaps, to manage these risks. The Company does not hold derivatives for trading purposes. The value of market-risk sensitive derivatives and other financial instruments is subject to change as a result of movements in market rates and prices. Sensitivity analysis is one technique used to evaluate these impacts. Based on a hypothetical ten percent change in interest rates or ten percent weakening in the U.S. Dollar across relevant foreign currencies, principally the Euro, the potential losses in future earnings, fair value and cash flows are not material to the Company. NEW ACCOUNTING STANDARD In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years beginning after June 15, 2000 and thus, the Company will adopt SFAS 133 on January 1, 2001. The Company has reviewed its current derivative instruments and hedging activities and has determined that the adoption of SFAS 133 would not have had a material impact on its consolidated financial statements as of December 31, 2000. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS All of the statements in this Annual Report to Stockholders, other than historical facts, are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995, including, without limitation, certain statements made in the Chairman's Letter, the remainder of the narrative/non-financial portions of the Report and in the Management's Discussion and Analysis, particularly under the caption "Outlook". As a general matter, forward- looking statements are those focused upon anticipated events or trends and expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to Gardner Denver's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from those expressed in or implied by forward-looking statements: the ability to identify, negotiate and complete future acquisitions; the speed with which the Company is able to integrate its recent acquisitions and realize the related financial benefit; the domestic and/or worldwide level of oil and natural gas prices and oil and gas drilling and production, which affect demand for the Company's petroleum products; changes in domestic and/or worldwide industrial production and industrial capacity utilization rates, which affect demand for the Company's compressed air products; pricing of Gardner Denver products; the degree to which the Company is able to penetrate niche markets; the ability to maintain and to enter into key purchasing and supply relationships; and the continued successful implementation of cost reduction efforts. 18 REPORT OF MANAGEMENT AND INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF MANAGEMENT The Company's management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements have been prepared in conformity with appropriate accounting principles generally accepted in the United States. In preparing the financial statements, management makes informed judgments and estimates, where necessary, to reflect the expected effects of events and transactions that have not been completed. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with accounting principles generally accepted in the United States. The design of this system recognizes that errors or irregularities may occur and that estimates and judgments are required to assess the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The Audit and Finance Committee of the Board of Directors (the "Committee"), which is comprised solely of Directors who are not employees of the Company, is responsible for monitoring the Company's accounting and reporting practices. The Committee meets with management periodically to review its activities and ensure that it is properly discharging its responsibilities. The Committee also meets periodically with the independent auditors, who have free access to the Committee and the Board of Directors, to discuss internal accounting control and auditing, financial reporting and tax matters. The independent auditors are engaged to express an opinion on the Company's consolidated financial statements. Their opinion is based on procedures which they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors. /s/ Ross J. Centanni /s/ Philip R. Roth Ross J. Centanni Philip R. Roth Chairman, President and Vice President, Finance and Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gardner Denver, Inc. We have audited the accompanying consolidated balance sheet of Gardner Denver, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gardner Denver, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP St. Louis, Missouri February 7, 2001 19 CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts) Year ended December 31, -------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------- Revenues $379,358 327,067 386,859 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 268,290 226,550 256,936 Depreciation and amortization 15,881 14,222 12,978 Selling and administrative expenses 59,784 53,080 52,986 Interest expense 7,669 5,934 4,849 Other income, net (2,160) (1,876) (784) - --------------------------------------------------------------------------------------------------- 349,464 297,910 326,965 - --------------------------------------------------------------------------------------------------- Income before income taxes 29,894 29,157 59,894 Provision for income taxes 11,210 11,109 23,089 - --------------------------------------------------------------------------------------------------- Net income $ 18,684 18,048 36,805 =================================================================================================== Basic earnings per share $ 1.22 1.20 2.29 =================================================================================================== Diluted earnings per share $ 1.21 1.18 2.22 =================================================================================================== The accompanying notes are an integral part of this statement.
20 CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts) December 31, ----------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 30,239 27,317 Receivables (net of allowances of $5,169 in 2000 and $4,838 in 1999) 79,448 72,272 Inventories, net 61,942 60,356 Deferred income taxes 4,887 3,664 Other 3,400 2,770 - --------------------------------------------------------------------------------------------------------------------------------- Total current assets 179,916 166,379 - --------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 67,104 62,892 Intangibles, net 149,297 138,584 Deferred income taxes 2,855 6,151 Other assets 4,709 5,413 - --------------------------------------------------------------------------------------------------------------------------------- Total assets $403,881 379,419 ================================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 5,781 5,289 Accounts payable and accrued liabilities 62,462 54,320 - --------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 68,243 59,609 - --------------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 115,808 114,200 Postretirement benefits other than pensions 39,496 43,377 Other long-term liabilities 9,186 9,624 - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities 232,733 226,810 ================================================================================================================================= Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 15,371,491 and 15,079,247 shares issued and outstanding in 2000 and 1999, respectively 170 167 Capital in excess of par value 160,343 157,367 Treasury stock at cost, 1,658,041 and 1,604,587 shares in 2000 and 1999, respectively (24,508) (23,541) Retained earnings 40,038 21,354 Accumulated other comprehensive loss (4,895) (2,738) - --------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 171,148 152,609 - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $403,881 379,419 ================================================================================================================================= The accompanying notes are an integral part of this statement.
21 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands) Accumulated Capital In Retained Other Total Common Excess of Treasury Earnings Comprehensive Stockholders' Comprehensive Stock Par Value Stock (Deficit) Loss Equity Income - --------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1998 $154 139,524 (333) (33,432) (2,302) 103,611 Stock issued for benefit plans and options 5 3,636 3,641 Stock issued for acquisition 4 10,496 10,500 Treasury stock (11,926) (11,926) Other (67) (67) Net income 36,805 36,805 36,805 Foreign currency translation adjustments 122 122 122 - --------------------------------------------------------------------------------------------------------------------------------- 36,927 ====== Balance December 31, 1998 $163 153,656 (12,259) 3,306 (2,180) 142,686 ================================================================================================================== Stock issued for benefit plans and options 4 3,711 3,715 Treasury stock (11,282) (11,282) Net income 18,048 18,048 18,048 Foreign currency translation adjustments (558) (558) (558) - --------------------------------------------------------------------------------------------------------------------------------- 17,490 ====== Balance December 31, 1999 $167 157,367 (23,541) 21,354 (2,738) 152,609 ================================================================================================================== Stock issued for benefit plans and options 3 2,976 2,979 Treasury stock (967) (967) Net income 18,684 18,684 18,684 Foreign currency translation adjustments (2,157) (2,157) (2,157) - --------------------------------------------------------------------------------------------------------------------------------- 16,527 ====== Balance December 31, 2000 $170 160,343 (24,508) 40,038 (4,895) 171,148 ================================================================================================================== The accompanying notes are an integral part of this statement.
22 CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands) Year ended December 31, -------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 18,684 18,048 36,805 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,881 14,222 12,978 Net gain on asset dispositions (917) -- -- LIFO liquidation income (683) (407) (4,541) Stock issued for employee benefit plans 2,071 2,261 2,423 Deferred income taxes 1,772 6,157 3,403 Changes in assets and liabilities: Receivables (5,987) 1,437 2,669 Inventories 1,627 (1,977) 11,695 Accounts payable and accrued liabilities 3,164 (8,330) (8,702) Other assets and liabilities, net (4,484) (4,792) (4,211) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 31,128 26,619 52,519 - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Business acquisitions, net of cash (20,323) (41,003) (37,578) Capital expenditures (13,549) (11,941) (19,679) Disposals of property, plant and equipment 1,125 728 602 Foreign currency hedging transactions 3,416 1,749 (427) - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (29,331) (50,467) (57,082) - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Principal payments on long-term debt (59,342) (24,554) (38,833) Proceeds from long-term borrowings 61,528 62,103 69,512 Purchase of treasury stock (967) (11,282) (11,926) Proceeds from stock options 908 1,454 1,218 Other (492) -- (136) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 1,635 27,721 19,835 - ------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and equivalents (510) (1,030) 371 - ------------------------------------------------------------------------------------------------------------------ Increase in cash and equivalents 2,922 2,843 15,643 Cash and equivalents, beginning of year 27,317 24,474 8,831 - ------------------------------------------------------------------------------------------------------------------ Cash and equivalents, end of year $ 30,239 27,317 24,474 ================================================================================================================== The accompanying notes are an integral part of this statement.
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements reflect the operations of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries. Certain prior year amounts have been reclassified to conform with current year presentation. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in entities in which the Company has 20% to 50% ownership are accounted for by the equity method. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's foreign operations are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders' equity. REVENUE RECOGNITION The Company recognizes revenues when goods are shipped to the customer. The company has recorded outbound freight billed to customers as revenues and outbound freight expenses in cost of sales in accordance with the requirements of the Financial Accounting Standards Board's Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF No. 00-10"). In accordance with EITF No. 00-10, which was adopted in the fourth quarter of 2000, all prior periods presented have been reclassified to conform with current year presentation. CASH EQUIVALENTS Cash equivalents are highly liquid investments (valued at cost, which approximates fair value), acquired with an original maturity of three months or less. INVENTORIES Inventories, which consist of materials, labor and manufacturing overhead, are carried at the lower of cost or market value. Approximately one-half of the Company's inventory is accounted for on a first-in, first-out (FIFO) basis with the remainder accounted for on a last-in, first-out (LIFO) basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets: buildings, 10 to 45 years; machinery and equipment, 10 to 12 years; office furniture and equipment, 3 to 10 years; and tooling, dies, patterns, etc., 3 to 7 years. INTANGIBLES Intangibles consist primarily of goodwill related to the various acquisitions completed by the Company. Goodwill is amortized on a straight-line basis over the period estimated to be benefited, not exceeding 40 years. The Company reviews long-lived assets, including goodwill and other intangibles, for impairment whenever conditions indicate that the carrying value of the assets may not be fully recoverable. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset value is written down to its fair market value. INCOME TAXES The Company has determined tax expense and other deferred tax information based on the liability method. Deferred income taxes are provided to reflect temporary differences between financial and tax reporting. RESEARCH AND DEVELOPMENT Costs for research and development are expensed as incurred and were $3,045, $2,754 and $3,479 for the years ended December 31, 2000, 1999 and 1998, respectively. FINANCIAL INSTRUMENTS Included on the balance sheet at December 31, 1999, is a foreign currency forward contract in Finnish Markka to hedge foreign exchange translation risk associated with the Company's investment in its Finnish subsidiary, Gardner Denver Oy. The contract was marked to market and both unrealized and realized gains and losses are included as a component of accumulated other comprehensive loss in stockholders' equity. This forward contract was settled in 2000 and the proceeds received are included as foreign currency hedging transactions in the consolidated statement of cash flows. There were no off-balance sheet derivative financial instruments as of December 31, 2000 and 1999. COMPREHENSIVE INCOME Items impacting the Company's comprehensive income, but not included in net income, consist of translation adjustments including realized and unrealized gains and losses, net of income taxes, on the foreign currency hedge of the Company's investment in a foreign subsidiary. 24 NOTE 2: ACQUISITIONS During 2000, the Company completed three acquisitions. Effective July 1, 2000, the Company acquired 100% of the issued and outstanding stock of CRS Power Flow, Inc. ("CRS"). On April 5, 2000, the Company acquired 100% of the issued and outstanding stock of Jetting Systems & Accessories, Inc. ("JSA"). CRS and JSA are both located in Houston, Texas. On January 1, 2000, the Company acquired substantially all of the assets and assumed certain agreed upon liabilities of Invincible Airflow Systems, Co. ("Invincible"), located in Baltic, Ohio. The aggregate purchase price of these acquisitions was approximately $20 million. The purchase price of each acquisition has been allocated primarily to receivables, inventory and property, plant and equipment, based on their respective fair values at the date of acquisition and resulted in aggregate costs in excess of net assets acquired of approximately $15 million. During 1999, the Company completed three acquisitions. On October 25, 1999, the Company purchased 100% of the issued and outstanding stock of Air Relief, Inc., located in Mayfield, Kentucky. On April 5, 1999, the Company purchased 100% of the issued and outstanding stock of Butterworth Jetting Systems, Inc., located in Houston, Texas. On April 1, 1999, the Company purchased 100% of the issued and outstanding stock of Allen-Stuart Equipment Co., Inc., also located in Houston, Texas. The aggregate purchase price for these three acquisitions was approximately $42 million (including contingent consideration paid in 2000) and was allocated to assets and liabilities based on their respective fair values at the dates of acquisition. This allocation resulted in aggregate costs in excess of net assets acquired of approximately $31 million. On March 9, 1998, the Company purchased substantially all of the assets and assumed certain agreed upon liabilities of the Wittig Division of Mannesmann Demag AG ("Wittig"). Wittig is located in Schopfheim, Germany. On January 29, 1998, the Company purchased substantially all of the assets and assumed certain agreed upon liabilities of Champion Pneumatic Machinery Company, Inc., located in Princeton, Illinois. On January 5, 1998, the Company acquired substantially all of the assets and assumed certain agreed upon liabilities of Geological Equipment Corporation, located in Fort Worth, Texas. The aggregate purchase price for these three acquisitions was approximately $48 million. The purchase price for these acquisitions was paid in cash and 430,695 shares of Gardner Denver common stock. The aggregate purchase price was allocated to assets and liabilities based on their respective fair values at the dates of acquisition and resulted in aggregate costs in excess of net assets acquired of approximately $29 million. All acquisitions have been accounted for by the purchase method, and accordingly, their results are included in the Company's consolidated financial statements from the respective dates of acquisition. Under the purchase method, the purchase price is allocated based on the fair value of assets received and liabilities assumed as of the acquisition date. The purchase price allocations for CRS, JSA and Invincible, used in preparation of the December 31, 2000 consolidated balance sheet, are preliminary and subject to adjustment in 2001, when finalized. Management does not expect the finalization of this allocation to have a significant impact on the Company's financial position or results of operations. As a result of the relative stability of the product technology, markets and customers associated with these acquisitions, the cost in excess of net assets acquired for each acquisition is being amortized over 40 years, using the straight-line method. NOTE 3: INVENTORIES
December 31, ---------------------- 2000 1999 - ------------------------------------------------------------------------------------ Raw materials, including parts and subassemblies $31,147 32,404 Work-in-process 9,334 9,395 Finished goods 24,987 22,506 Perishable tooling and supplies 2,443 2,506 - ------------------------------------------------------------------------------------ 67,911 66,811 Excess of FIFO costs over LIFO costs (5,969) (6,455) - ------------------------------------------------------------------------------------ Inventories, net $61,942 60,356 ====================================================================================
During 2000, 1999 and 1998, reductions in inventory quantities (net of acquisitions) resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years. The effect was to increase net income in 2000, 1999 and 1998 by $427, $252 and $2,788, respectively. It is the Company's policy to record the earnings effect of LIFO inventory liquidations in the quarter in which a decrease for the entire year becomes certain. In each of the years 1998 through 2000, the LIFO liquidation income was recorded in the fourth quarter. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) NOTE 4: PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
December 31, ------------------------ 2000 1999 - ------------------------------------------------------------------------------------------ Property, plant and equipment: Land and land improvements $ 5,608 4,695 Buildings 38,521 36,069 Machinery and equipment 90,602 81,812 Tooling, dies, patterns, etc. 33,080 30,671 Office furniture and equipment 11,240 10,479 Other 4,695 3,484 Construction in progress 5,035 8,258 - ------------------------------------------------------------------------------------------ 188,781 175,468 Accumulated depreciation (121,677) (112,576) - ------------------------------------------------------------------------------------------ Property, plant and equipment, net $ 67,104 62,892 ========================================================================================== Intangibles: Goodwill $ 175,004 159,494 Other 4,969 5,145 - ------------------------------------------------------------------------------------------ 179,973 164,639 Accumulated amortization (30,676) (26,055) - ------------------------------------------------------------------------------------------ Intangibles, net $ 149,297 138,584 ==========================================================================================
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, ------------------------ 2000 1999 - ------------------------------------------------------------------------------------------ Accounts payable - trade $ 32,019 28,405 Accrued warranty 5,887 5,194 Salaries, wages and related fringe benefits 5,481 3,840 Product liability, workers' compensation and other insurance 4,547 4,058 Other 14,528 12,823 - ------------------------------------------------------------------------------------------ Total accounts payable and accrued liabilities $ 62,462 54,320 ==========================================================================================
NOTE 6: PENSION AND OTHER POSTRETIREMENT BENEFITS The Company sponsors retirement plans covering substantially all employees. Benefits are provided to employees under defined benefit pay-related and service-related plans which are noncontributory. Annual contributions to retirement plans equal or exceed the minimum funding requirements of the Employee Retirement Income Security Act. The Company also sponsors defined contribution plans. Benefits are determined and funded annually based on terms of the plans or as stipulated in a collective bargaining agreement. Salaried employees who retired prior to 1989, as well as certain other employees who were near retirement and elected to receive certain benefits, have retiree medical, prescription and life insurance benefits. All other active salaried employees will not have postretirement medical benefits. The hourly employees have separate plans with varying benefit formulas. In all cases, however, currently active hourly employees, except for certain employees who are near retirement, will not receive healthcare benefits after retirement. All of the Company's postretirement medical plans are unfunded. The following tables provide a reconciliation of the changes in both the pension and other postretirement plans benefit obligations and fair value of assets over the two-year period ending December 31, 2000, and a statement of the funded status as of December 31, 2000 and 1999: 26
Other Pension Benefits Postretirement Benefits ---------------------------------------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------ RECONCILIATION OF BENEFIT OBLIGATION Obligation at January 1 $48,860 54,106 $ 25,261 27,481 Service cost 1,819 1,721 13 24 Interest cost 3,671 3,453 1,894 1,877 Actuarial (gain) loss 1,779 (4,627) 2,380 (1,866) Plan amendments -- -- (1,100) -- Benefit payments (5,206) (5,850) (2,485) (2,255) New participants -- 396 -- -- Effect of exchange rate changes (222) (339) -- -- - ------------------------------------------------------------------------------------------------------------------ Obligation at December 31 $50,701 48,860 $25,963 25,261 ================================================================================================================== RECONCILIATION OF FAIR VALUE OF PLAN ASSETS Fair value of plan assets at January 1 $56,082 55,083 Actual return on plan assets (255) 6,273 Employer contributions 253 576 Benefit payments (5,206) (5,850) - ------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at December 31 $50,874 56,082 $ -- -- ================================================================================================================== FUNDED STATUS Funded status at December 31 $ 173 7,222 $(25,963) (25,261) Unrecognized transition liability (asset) 32 43 -- -- Unrecognized prior-service cost (795) (880) (3,861) (4,040) Unrecognized gain (4,471) (11,422) (12,040) (16,444) - ------------------------------------------------------------------------------------------------------------------ Accrued benefit liability $(5,061) (5,037) $(41,864) (45,745) ==================================================================================================================
The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2000 and 1999 are as follows:
December 31, --------------------- 2000 1999 --------------------- Accumulated benefit obligation $8,521 7,890 ================================================================================================================== Fair value of plan assets $3,469 3,914 ==================================================================================================================
27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The following table provides the components of net periodic benefit expense (income) for the plans for the years ended December 31, 2000, 1999 and 1998.
Pension Benefits Other Postretirement Benefits ------------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------ ------------------------------------- Service cost $ 1,819 1,721 1,243 $ 13 24 28 Interest cost 3,671 3,453 3,569 1,894 1,877 1,860 Expected return on plan assets (4,480) (4,424) (4,443) -- -- -- Amortization of transition asset 10 (206) (209) -- -- -- Amortization of prior-service cost (85) 167 (86) (1,279) (1,200) (1,200) Amortization of net (gain) loss (422) 4 (64) (2,023) (1,673) (2,431) - ------------------------------------------------------------------------------------ ------------------------------------- Net periodic benefit expense (income) 513 715 10 $(1,395) (972) (1,743) ===================================== Defined contribution plans 3,230 3,471 3,576 - ------------------------------------------------------------------------------------ Total retirement plan expense $ 3,743 4,186 3,586 ====================================================================================
COMPUTATIONAL ASSUMPTIONS Pension and Other Postretirement Benefits ----------------------------------------------------------------- Net Periodic Expense Benefit Obligation ----------------------------------------------------------------- Year ended December 31, December 31, - --------------------------------------------------------------------------------------------------- -------------------- 2000 1999 1998 2000 1999 - --------------------------------------------------------------------------------------------------- -------------------- Discount rate 8.25% 6.75% 7.25% 7.75% 8.25% Pension Benefits ----------------------------------------------------------------- Rate of increase in compensation levels 5.00% 5.00% 5.50% 5.00% 5.00% Expected long-term rate of return on assets 9.00% 8.50% 8.50% -- -- =================================================================================================================================
For measurement purposes, the annual rate of increase in the per capita cost of covered healthcare benefits assumed for 2001 was 8.5% for all participants. The rates were assumed to decrease gradually each year to a rate of 5.5% for 2006 and remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement medical plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:
One Percentage Point ----------------------- Increase Decrease - --------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components of net periodic other postretirement benefit cost - increase (decrease) 7.2% (6.4%) Effect on the postretirement benefit obligation - increase (decrease) 7.9% (7.0%) ===================================================================================================
The full-time salaried and hourly employees of the Company's Wittig operation in Germany have pension benefits provided under defined benefit pay-related and service-related plans which are noncontributory. Consistent with the practice in Germany, these plans are unfunded. As a result of the acquisition of Wittig and the unfunded nature of the plans, the full amount of the projected pension benefit obligation as of the acquisition date was recorded as an accrued benefit liability on the Consolidated Balance Sheet. The change in the pension benefit obligation and the net periodic pension benefit expense from the acquisition date forward have been included in the preceding pension benefit tables. The full-time salaried and hourly employees of the Company's operations in Finland have pension benefits which are guaranteed by the Finnish government. Although the plans are similar to defined benefit plans, the guarantee feature of the government causes the substance of the plans to be defined contribution. Therefore, the discounted future liability of these plans is not included in the liability for defined benefit plans, but the expense for the Company's contribution is included in the pension benefit cost for defined contribution plans. Certain of the Company's full-time salaried and non-union hourly employees are eligible to participate in Company sponsored defined contribution savings plans, which are qualified plans under the requirements of Section 401(k) of the Internal Revenue Code. The Company's matching contributions to the savings plans are in the form of the Company's common stock. 28 NOTE 7: STOCK-BASED COMPENSATION PLANS Under the Company's Long-Term Incentive Plan (the "Incentive Plan"), designated employees are eligible to receive awards in the form of stock options, stock appreciation rights, restricted stock grants or performance shares, as determined by the Management Development and Compensation Committee of the Board of Directors. An aggregate of 2,750,000 shares of common stock has been reserved for issuance under the Incentive Plan. Through December 31, 2000, the Company has granted options on 2,653,609 shares. Under the Incentive Plan, the option exercise price equals the fair market value of the common stock on the date of grant. Under the terms of existing awards, one-third of employee options granted become vested and exercisable on each of the first three anniversaries of the date of grant. The options granted to employees in 1998, 1999 and 2000 expire ten years after the date of the grant. Under the Incentive Plan, each nonemployee director is automatically granted an option to purchase 3,000 shares of common stock on the day after each annual meeting of stockholders. These options are granted at the fair market value of the common stock on the date of grant, become exercisable on the first anniversary of the date of grant (or upon retirement, death or cessation of service due to disability, if earlier) and expire five years after the date of grant. The Company also has an employee stock purchase plan (the "Stock Purchase Plan"), a qualified plan under the requirements of Section 423 of the Internal Revenue Code, and has reserved 675,000 shares for issuance. In 1997, all eligible employees who enrolled in the offering received options to purchase shares of common stock at the lesser of 90% of the fair market price of the stock on the offering date or 100% of the fair market price on the exercise date. The 1997 offering under the Stock Purchase Plan required participating employees to have the purchase price of the options withheld from their pay over a two-year period. The exercise date for the 1997 offering was November 8, 1999, at which time employees elected to purchase 30,328 shares at $13.56 per share, the fair market price on this date. In November 1999, the Stock Purchase Plan was amended to permit eligible employees to purchase shares at the lesser of 90% of the fair market price of the common stock on either the offering date or the exercise date. At that time, the Stock Purchase Plan was also amended to require participants to have the purchase price of their options withheld from their pay over a one-year period. The exercise date for the 1999 offering was January 2, 2001. As of December 31, 2000, employees had enrolled to purchase 118,136 shares at an offering price of $10.74 per share under the 1999 offering. In November 2000, the Stock Purchase Plan was amended to permit eligible employees to purchase shares at the lesser of 85% of the fair market price of the common stock on either the offering date or the exercise date. The exercise date for the 2000 offering is January 2, 2002. As of December 31, 2000, employees had enrolled to purchase 85,577 shares at an offering price of $15.36 per share under the 2000 offering. The Company accounts for both the Incentive Plan and the Stock Purchase Plan using the intrinsic value methodology prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123" or the "Statement"), requires pro forma disclosure of the impact on earnings as if the compensation costs for these plans had been determined consistent with the fair value methodology of this Statement. The Company's net income and earnings per share would have been reduced to the following pro forma amounts under SFAS 123:
2000 1999 1998 - --------------------------------------------------------------------------------------------------- Net income As reported $18,684 18,048 36,805 Pro forma 17,393 17,043 35,655 Basic earnings per share As reported $ 1.22 1.20 2.29 Pro forma 1.14 1.13 2.22 Diluted earnings per share As reported $ 1.21 1.18 2.22 Pro forma 1.12 1.11 2.15 ===================================================================================================
A summary of the status of the Company's Incentive Plan at December 31, 2000, 1999 and 1998, and changes during the years then ended, is presented in the table and narrative below (underlying shares in thousands):
2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price --------------------------------------------------------------------------------- Options outstanding, beginning of year 1,072 $13.91 1,077 $12.36 1,174 $ 6.91 Granted 275 17.42 223 13.00 257 26.01 Exercised (225) 4.03 (219) 4.76 (334) 3.64 Forfeited (51) 20.72 (9) 19.36 (20) 13.57 ----- ----- ----- Options outstanding, end of year 1,071 16.60 1,072 13.99 1,077 12.36 ===== ===== ===== Options exercisable, end of year 621 16.09 647 11.11 623 6.49 =================================================================================================================================
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The following table summarizes information about fixed-price stock options outstanding at December 31, 2000 (underlying shares in thousands):
Options Outstanding Options Exercisable ----------------------------------------------------------------------------------- Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg. Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 12/31/00 Contractual Life Price at 12/31/00 Price - --------------------------------------------------------------------------------------------------------------------------------- $ 5.00 - 10.00 228 5.2 years $ 8.74 228 $ 8.74 10.01 - 15.00 210 8.3 12.73 65 12.56 15.01 - 20.00 389 6.3 17.20 149 16.70 20.01 - 30.00 243 6.1 26.36 179 26.18 - ---------------------------------------------------------------------------------------------------------------------------------
The fair value of each option granted under the Incentive Plan and the Stock Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for grants in 2000, 1999 and 1998, respectively: risk-free interest rates of 6.5%, 5.4% and 5.4%; expected volatility of 38%, 38% and 36%; and expected lives of 3.3, 2.9 and 4.8 years. The valuations assume no dividends are paid. The weighted average fair values of options granted in 2000, 1999 and 1998 were $6.34, $4.07 and $10.31, respectively. NOTE 8: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE At December 31, 2000 and 1999, 50,000,000 shares of $.01 par value common stock and 10,000,000 shares of $.01 par value preferred stock were authorized. Shares of common stock issued and outstanding at December 31, 2000 and 1999, were 15,371,491 and 15,079,247, respectively. No shares of preferred stock were issued or outstanding at December 31, 2000 or 1999. The shares of preferred stock, which may be issued without further stockholder approval (except as may be required by applicable law or stock exchange rules), may be issued in one or more series, with the number of shares of each series and the rights, preferences and limitations of each series to be determined by the Board of Directors. The Company has a Stockholder's Rights Plan, under which each share of Gardner Denver's outstanding common stock has an associated preferred share purchase right. The rights are exercisable only under certain circumstances and allow holders of such rights to purchase common stock of Gardner Denver or an acquiring company at a discounted price, which generally would be 50% of the respective stock's current fair market value. The following table details the calculation of basic and diluted earnings per share:
Year ended December 31, ---------------------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Amt. Amt. Amt. Net Wtd. Avg. Per Net Wtd. Avg. Per Net Wtd. Avg. Per Income Shares Share Income Shares Share Income Shares Share - --------------------------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE: Income available to common stockholders $18,684 15,300,222 $1.22 $18,048 15,018,219 $1.20 $36,805 16,066,699 $2.29 ===== ===== ===== DILUTED EARNINGS PER SHARE: Effect of dilutive securities: Stock options granted and outstanding -- 189,188 -- 340,057 -- 543,308 - --------------------------------------------------------------------------------------------------------------------------------- Income available to common stockholders and assumed conversions $18,684 15,489,410 $1.21 $18,048 15,358,276 $1.18 $36,805 16,610,007 $2.22 =================================================================================================================================
30 NOTE 9: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
December 31, ----------------------- 2000 1999 - ------------------------------------------------------------------------------------ Credit line, due 2003 (1) $ 81,082 74,297 Unsecured senior note, due 2006 (2) 30,000 35,000 Variable rate industrial revenue bond, due 2018 (3) 9,500 9,500 Other 1,007 692 - ------------------------------------------------------------------------------------ 121,589 119,489 Current maturities of long-term debt (5,781) (5,289) - ------------------------------------------------------------------------------------ Long-term debt, less current maturities $115,808 114,200 ==================================================================================== (1) The facility was effective January 20, 1998. The loans under the facility may be denominated in U.S. Dollars or several foreign currencies. At December 31, 2000, the outstanding balance consisted of three loans: $46,000, DEM 20,000 and EUR 27,000. The interest rates vary with market rates for federal funds and/or LIBOR for the applicable currency and the Company's debt to adjusted income ratio. As of December 31, 2000, the rates for the U.S. Dollar loan, German Mark loan and Euro loan were 7.4%, 5.6% and 5.5% respectively, and averaged 6.9%, 4.8% and 5.5%, respectively, for the year ended December 31, 2000. (2) On September 26, 1996, the Company entered into an unsecured senior note agreement at a fixed interest rate of 7.3%. This debt matures in 2006 and requires equal annual principal payments from 2000 to 2006. (3) The interest rate varies with market rates for tax-exempt industrial revenue bonds. As of December 31, 2000, this rate was 5.2% and averaged 4.3% for the year ended December 31, 2000. ====================================================================================
On January 20, 1998, the Company entered into an agreement for a new revolving line of credit with an aggregate $125,000 borrowing capacity and terminated the previous agreement. Of the available credit line, $81,082 was outstanding at December 31, 2000, leaving $43,918 available for additional borrowings or letters of credit. The total debt balance will mature on January 20, 2003. In September 1996, the Company obtained fixed rate financing by entering into an unsecured senior note agreement for $35,000. This note has a ten-year final, seven-year average maturity with principal payments that began in 2000. Both of these borrowing agreements are unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of these agreements, other than customary covenants regarding certain earnings, liquidity and capital ratios. On April 23, 1998, the Fayette County Development Authority issued $9,500 in industrial revenue bonds, on behalf of the Company, to finance the cost of constructing and equipping a new manufacturing facility in Peachtree City, Georgia. The principal for these industrial revenue bonds is to be repaid in full on March 1, 2018. These industrial revenue bonds are secured by a letter of credit. Maturities of long-term debt for the five years subsequent to December 31, 2000, are $5,781, $5,000, $86,082, $5,000 and $5,000, respectively. Interest paid in 2000, 1999 and 1998 was $8,483, $5,489 and $5,494, respectively. The rentals for all operating leases were $2,453, $2,437 and $2,531 in 2000, 1999 and 1998, respectively. Future minimum rental payments for operating leases for the five years subsequent to December 31, 2000 and thereafter are $2,054, $1,693, $1,079, $834, $345 and $1,169, respectively. NOTE 10: INCOME TAXES The following table details the components of the provision for income taxes. A portion of these income taxes will be payable within one year and are therefore classified as current, while the remaining balance is deferred.
Year ended December 31, ------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------- Income taxes: Current: U.S. federal $ 7,130 5,298 16,164 U.S. state and local 815 605 1,847 Non-U.S. 1,192 404 1,066 - --------------------------------------------------------------------------------------------------- Current 9,137 6,307 19,077 - --------------------------------------------------------------------------------------------------- Deferred: U.S. federal 1,860 4,309 3,587 U.S. state and local 213 493 410 Non-U.S. -- -- 15 - --------------------------------------------------------------------------------------------------- Deferred 2,073 4,802 4,012 - --------------------------------------------------------------------------------------------------- Provision for income taxes $11,210 11,109 23,089 ===================================================================================================
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The following table reconciles the statutory U.S. federal corporate income tax rate to the Company's effective tax rate (as a percentage of the Company's income before income taxes):
Year ended December 31, -------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------- U.S. federal income tax rate 35.0% 35.0 35.0 Changes in the tax rate resulting from: State and local income taxes 3.4 3.4 3.4 Nondeductible goodwill 4.2 3.5 1.6 Foreign sales corporation benefit (3.0) (2.5) (1.1) Other, net (2.1) (1.3) (0.3) - --------------------------------------------------------------------------------------------------- Effective income tax rate 37.5% 38.1 38.6 =================================================================================================== December 31, -------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------- Components of deferred tax balances: Deferred tax assets: Reserves and accruals $ 10,748 11,046 Postretirement benefits other than pensions 16,327 17,841 Other 955 1,318 - --------------------------------------------------------------------------------------------------- Total deferred tax assets 28,030 30,205 - --------------------------------------------------------------------------------------------------- Deferred tax liabilities: LIFO inventory (3,569) (4,507) Plant and equipment (5,933) (6,022) Intangibles (2,289) (2,028) Other (8,497) (7,833) - --------------------------------------------------------------------------------------------------- Total deferred tax liabilities (20,288) (20,390) - --------------------------------------------------------------------------------------------------- Net deferred tax assets $ 7,742 9,815 ===================================================================================================
U.S. deferred income taxes are not provided on certain undistributed earnings of non-U.S. subsidiaries because the Company intends to reinvest such earnings indefinitely. The estimated amount of income taxes that would be incurred should such earnings be distributed is not significant due to available foreign tax credits and earnings and profit levels. Income taxes paid in 2000, 1999 and 1998 were $9,189, $7,234 and $17,874, respectively. NOTE 11: OFF-BALANCE SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK There were no off-balance sheet derivative financial instruments as of December 31, 2000 and 1999. Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets into which the Company's products are sold, as well as their dispersion across many different geographic areas. As a result, the Company does not consider itself to have any significant concentrations of credit risk as of December 31, 2000. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and equivalents, trade receivables, trade payables, and debt instruments. The book values of these instruments are not materially different from their respective fair values. NOTE 12: CONTINGENCIES The Company has been identified as a potentially responsible party with respect to various sites designated for cleanup under various state and federal laws. The Company does not own any of these sites. The Company believes that the costs related to these sites will not have a materially adverse effect on its consolidated financial position, results of operations or liquidity. In addition to the environmental matters, the Company is a party to various other legal proceedings and administrative actions, which are of an ordinary or routine nature, incidental to the operations of the Company. 32 NOTE 13: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000 QUARTER ENDED --------------------------------------------------------- MARCH 31,(2) JUNE 30, SEPT. 30, DEC. 31,(3) - --------------------------------------------------------------------------------------------------------------------------------- Revenues $89,166 94,888 91,614 103,690 Gross margin (1) 26,259 28,201 25,568 31,040 Net income 3,951 4,648 4,026 6,059 Basic earnings per share $ 0.26 0.30 0.26 0.39 Diluted earnings per share $ 0.26 0.30 0.26 0.39 ================================================================================================================================= 1999 Quarter Ended --------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31,(3) - --------------------------------------------------------------------------------------------------------------------------------- Revenues $71,089 86,234 77,823 91,921 Gross margin (1) 21,501 28,382 23,579 27,055 Net income 3,203 5,989 3,999 4,857 Basic earnings per share $ 0.21 0.40 0.27 0.32 Diluted earnings per share $ 0.21 0.39 0.26 0.32 ================================================================================================================================= Certain prior period amounts have been reclassified to conform with current presentation (See Note 1). (1) Gross margin equals revenues less cost of sales. (2) Includes a gain of $413 in net income related to the sale of the Company's idle facility in Syracuse, NY. (3) Includes an increase in net income in 2000 and 1999 of $427 and $252, respectively, related to LIFO inventory liquidations. Net income in 2000 also includes a gain of $605 for litigation settlement proceeds and a charge of $906 for expenses associated with an unconsummated acquisition. - ---------------------------------------------------------------------------------------------------------------------------------
NOTE 14: SEGMENT INFORMATION The Company is organized based on the products and services it offers. Under this organizational structure, the Company has three operating units: compressor products, blower products and petroleum products, which result in two reportable segments, Compressed Air Products and Petroleum Products. The compressor and blower products operating units have been aggregated into one reportable segment (Compressed Air Products) since the long-term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes, served markets and other business characteristics. In the Compressed Air Products segment, the Company designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, sliding vane and centrifugal air compressors; positive displacement and centrifugal blowers and water jet pumps and systems. The markets served are primarily in the United States, but a growing portion of revenue is from exports and expanding European operations. The Petroleum Products segment designs, manufactures, markets and services a diverse group of pumps and related aftermarket parts used in oil and natural gas production, well servicing and stimulation and oil and gas drilling markets. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates the performance of its segments based on income before interest expense, other income, net and income taxes. Certain assets attributable to corporate activity are not allocated to the segments. Unallocated assets primarily consist of cash and equivalents and deferred tax assets. Intersegment sales and transfers are not significant. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts) Revenues Operating Earnings Identifiable Assets -------------------------------- ------------------------------- ----------------------------- Year ended December 31, Year ended December 31, December 31, -------------------------------- ------------------------------- ----------------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 - --------------------------------------------------------------- ------------------------------- ----------------------------- Compressed Air Products $321,720 297,095 299,701 $30,082 30,603 42,597 $311,837 296,446 252,386 Petroleum Products 57,638 29,972 87,158 5,321 2,612 21,362 54,063 45,841 50,653 -------------------------------- ------------------------------- ----------------------------- Total $379,358 327,067 386,859 35,403 33,215 63,959 365,900 342,287 303,039 ================================ Interest expense (7,669) (5,934) (4,849) Other income, net 2,160 1,876 784 ------------------------------- Income before income taxes $29,894 29,157 59,894 =============================== General Corporate 37,981 37,132 39,091 ----------------------------- Total assets $403,881 379,419 342,130 ============================= Year ended December 31, -------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Income from reductions of inventory quantities resulting in liquidations of LIFO inventory layers, included in operating earnings above: Compressed Air Products $ 610 369 2,543 Petroleum Products 73 38 1,998 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 683 407 4,541 ================================================================================================================================= Depreciation and amortization, included in operating earnings above: Compressed Air Products $ 13,913 12,494 10,602 Petroleum Products 1,968 1,728 2,376 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 15,881 14,222 12,978 ================================================================================================================================= Capital expenditures: Compressed Air Products $ 11,519 10,493 17,025 Petroleum Products 2,030 1,448 2,654 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 13,549 11,941 19,679 ================================================================================================================================= Year ended December 31, -------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Revenues outside the United States were comprised of sales to unaffiliated companies in: Europe $ 53,877 49,647 54,815 Canada 21,838 14,300 21,942 Latin America 13,214 12,268 10,837 Asia 13,745 6,904 6,512 Other 4,554 11,252 14,859 - --------------------------------------------------------------------------------------------------------------------------------- Total $107,228 94,371 108,965 =================================================================================================================================
Net long-lived assets by geographic area are as follows:
December 31, -------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- United States $195,493 178,173 145,895 Europe 20,908 23,303 27,620 - --------------------------------------------------------------------------------------------------------------------------------- Total $216,401 201,476 173,515 =================================================================================================================================
34 STOCKHOLDER INFORMATION STOCK INFORMATION Gardner Denver's common stock has traded on the New York Stock Exchange since August 14, 1997, under the ticker symbol GDI. Prior to this date, the Company's common stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol GDMI. The quarterly high and low sales prices for the Company's common stock for the two most recent years, as reported by the New York Stock Exchange, are as follows:
2000 QUARTER ENDED ------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- HIGH 20.75 19.63 17.94 21.30 LOW 16.00 16.81 14.25 14.94 ======================================================================================================================= 1999 Quarter Ended ------------------------------------------------------------------------------------- March 31, June 30, September 30, December 31, - ----------------------------------------------------------------------------------------------------------------------- High 17.00 19.31 21.75 16.81 Low 11.56 14.06 14.75 11.00 =======================================================================================================================
As of March 1, 2001, there were approximately 8,700 holders of record of Gardner Denver's common stock. DIVIDENDS Gardner Denver has not paid a cash dividend since its spin-off from Cooper Industries, Inc. in April 1994. The cash flow generated by the Company is currently utilized for debt service and capital accumulation and reinvestment. TRANSFER AGENT AND REGISTRAR EquiServe P.O. Box 2500 Jersey City, NJ 07303-2500 (800) 519-3111 (201) 324-1225 (201) 222-4955 (for the hearing impaired) E-mail address: equiserve@equiserve.com NEWS RELEASES BY FAX Gardner Denver's news releases, including the quarterly earnings release, are available by fax, without charge, by calling (800) 758-5804, extension 303875, or by visiting our website at WWW.GARDNERDENVER.COM. FORM 10-K A copy of the annual report on Form 10-K filed with the Securities and Exchange Commission is available, without charge, upon written request to the Corporate Secretary at the Company's address indicated below. ANNUAL MEETING The 2001 Annual Meeting of Stockholders will be held on May 1 at the Quincy Country Club, 2410 State Street, Quincy, IL, starting at 1:30 p.m. CORPORATE OFFICES Gardner Denver, Inc. 1800 Gardner Expressway Quincy, IL 62301 (217) 222-5400 E-mail address: MKTG@GARDNERDENVER.COM website address: WWW.GARDNERDENVER.COM INTERNET ACCESS For access to information on your Gardner Denver investment via the Internet, registered stockholders may contact the Company's transfer agent at (877) 843-9327 for a personal identification number and then visit their website at www.equiserve.com. 35 BOARD OF DIRECTORS AND CORPORATE OFFICERS BOARD OF DIRECTORS DONALD G. BARGER, JR. Senior Vice President and Chief Financial Officer Yellow Corporation ROSS J. CENTANNI Chairman, President and Chief Executive Officer Gardner Denver, Inc. FRANK J. HANSEN President and Chief Executive Officer (retired) IDEX Corporation RAYMOND R. HIPP Chairman, President and Chief Executive Officer Alternative Resources Corporation THOMAS M. MCKENNA President United Sugars Corporation DIANE K. SCHUMACHER Senior Vice President, General Counsel and Secretary Cooper Industries, Inc. RICHARD L. THOMPSON Group President and Executive Office Member Caterpillar Inc. CORPORATE OFFICERS ROSS J. CENTANNI Chairman, President and Chief Executive Officer DAVID BROWN Vice President and General Manager, Gardner Denver Blower Division STEVEN M. KRIVACEK Vice President, Human Resources TRACY D. PAGLIARA Vice President, General Counsel and Secretary DANIEL C. RIZZO, JR. Vice President and Corporate Controller PHILIP R. ROTH Vice President, Finance and Chief Financial Officer J. DENNIS SHULL Vice President and General Manager, Gardner Denver Compressor and Pump Division 36 EX-21 7 ex21.txt SUBSIDIARIES OF GARDNER DENVER, INC. Exhibit 21.0 GARDNER DENVER, INC. SCHEDULE OF SUBSIDIARIES YEAR ENDED DECEMBER 31, 2000
Name Subsidiary Uses Subsidiary Name Incorporation for Doing Business --------------- ------------- -------------------- Gardner Denver International, Inc. Delaware Gardner Denver International, Inc. Gardner Denver Export, Inc. Barbados Gardner Denver Export, Inc. Gardner Denver Holdings Inc. Delaware Gardner Denver Holdings Inc. Lamson Corporation TCM Investments, Inc. Oklahoma TCM Investments, Inc. Gardner Denver Wittig GmbH Germany Gardner Denver Wittig GmbH Gardner Denver Oy Finland Gardner Denver Oy Allen-Stuart Equipment Co., Inc. Texas Gardner Denver Engineered Packaging Center Gardner Denver Water Jetting Texas Gardner Denver Water Jetting Systems, Inc. Systems, Inc. Air Relief, Inc. Kentucky Air Relief, Inc. CRS Power Flow, Inc. Texas CRS Power Flow, Inc.
EX-23 8 ex23.txt CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.0 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report incorporated by reference in this Form 10-K into the Company's previously filed Registration Statements, File Numbers 33-91088, 333-24921 and 333-83397. ARTHUR ANDERSEN LLP St. Louis, Missouri March 26, 2001 EX-24 9 ex24.txt POWERS OF ATTORNEY Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2000 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 27th day of February 2001. ------------- ------------- --------- /s/Thomas M. McKenna ------------------------------- Thomas M. McKenna Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2000 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 27th day of February 2000. ------------- ------------- --------- /s/Diane K. Schumacher ------------------------------- Diane K. Schumacher 2 Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2000 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 27th day of February 2001. ------------- ------------- --------- /s/Donald G. Barger, Jr. ------------------------------- Donald G. Barger, Jr. 3 Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2000 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 27th day of February 2001. ------------- ------------- --------- /s/Frank J. Hansen ------------------------------- Frank J. Hansen 4 Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2000 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 27th day of February 2001. ------------- ------------- --------- /s/Richard L. Thompson ------------------------------- Richard L. Thompson 5 Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2000 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Tracy D. Pagliara, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 27th day of February 2001. ------------- ------------- --------- /s/Raymond R. Hipp ------------------------------- Raymond R. Hipp 6 10-K405 10 gard10k.txt GARDNER DENVER, INC. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the fiscal year ended December 31, 2000 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the transition period from ----------------- to ----------------- Commission file number 1-13215 ----------------------------------- GARDNER DENVER, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 76-0419383 - ---------------------------------------- --------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 Gardner Expressway, Quincy, IL 62301 - ---------------------------------------- --------------------------------- (Address of Principal Executive Offices) (Zip Code) (217) 222-5400 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value - -------------------------------------------------------------------------------- (Title of Class) Rights to Purchase Preferred Stock - -------------------------------------------------------------------------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's voting stock held by non-affiliates as of March 23, 2001 was $289,392,897. The number of shares outstanding of the registrant's Common Stock, as of March 23, 2001 was 15,523,864. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Gardner Denver, Inc. Proxy Statement, dated March 23, 2001 (incorporated into Part III of this Annual Report on Form 10-K). Portions of the 2000 Annual Report to Stockholders (incorporated into Parts I and II of this Annual Report on Form 10-K). ================================================================================ PART I ITEM 1. BUSINESS GENERAL Gardner Denver, Inc. ("Gardner Denver" or the "Company") believes, based on total sales in the United States, it is one of the leading manufacturers of stationary air compressors and blowers for industrial applications. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration and engineered vacuum systems. Gardner Denver also believes that it is one of the leading manufacturers of petroleum pumps used in oil and natural gas drilling and production, well servicing and well stimulation. In 2000, Gardner Denver had revenues of $379.4 million, of which approximately 85 percent were derived from sales of compressed air products while approximately 15 percent were from sales of petroleum products. Approximately 72 percent of the total revenues in 2000 were derived from sales in the United States and approximately 28 percent were from sales to customers in various countries outside the United States. Of the total non-U.S. sales, 50 percent were to Europe, 20 percent to Canada, 13 percent to Asia, 12 percent to Latin America and the remainder to Africa, the Middle East and Australia. HISTORY The Company's business of manufacturing industrial and petroleum equipment began in 1859 when Robert W. Gardner redesigned the fly-ball governor to provide speed control for steam engines. By 1900, the then Gardner Company had expanded its product line to include steam pumps and vertical high-speed air compressors. In 1927, the Gardner Company merged with Denver Rock Drill, a manufacturer of equipment for oil wells and mining and construction, and became the Gardner-Denver Company. In 1979, the Gardner-Denver Company was acquired by Cooper Industries, Inc. ("Cooper") and operated as 10 unincorporated divisions. Two of these divisions, the Gardner-Denver Air Compressor Division and the Petroleum Equipment Division, were combined in 1985 to form the Gardner-Denver Industrial Machinery Division (the "Division"). The OPI(R) pump product line was purchased in 1985 and added to the Division. In 1987, Cooper acquired the Sutorbilt(R) and DuroFlow(R) blower product lines and the Joy(R) industrial compressor product line, which were also consolidated into the Division. Effective December 31, 1993, the assets and liabilities of the Division were transferred by Cooper to the Company, which had been formed as a wholly-owned subsidiary of Cooper. On April 15, 1994, the Company was spun-off as an independent company to the shareholders of Cooper. Gardner Denver has completed a number of acquisitions since becoming an independent company. In 1996, Gardner Denver acquired NORAMPTCO, Inc., renamed Gardner Denver Holdings Inc., and its primary operating subsidiary Lamson Corporation ("Lamson"). Lamson designs, manufactures and sells multistage centrifugal blowers and exhausters used in various industrial and wastewater applications. Lamson's products complemented the Company's product offering by enabling it to expand its participation in environmental and industrial segments requiring air and gas management. 1 Also in 1996, the Company acquired TCM Investments, Inc., an oil field pump manufacturer based in Tulsa, Oklahoma. This acquisition extended the Company's well stimulation pump product line, provided a physical presence in the oil field market and allowed Gardner Denver to become a major supplier of repair parts and remanufacturing services to some of the Company's customers. In 1997, the Company acquired Oy Tamrotor Ab ("Tamrotor"), located in Tampere, Finland. Tamrotor designs and manufactures lubricated rotary screw compressor air ends and packages. The addition of Tamrotor provided the Company with a manufacturing base in Europe and growth opportunities through complementary product lines and international market penetration. In 1999, the Company liquidated Tamrotor and now conducts business in Finland as Gardner Denver OY. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opened new market opportunities for Gardner Denver products and expanded the range of reciprocating compressors available to existing distributors. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"), a leading manufacturer of pumps in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhanced the Gardner Denver well servicing product line, expanded the Company's presence in remanufacturing and repair services and introduced the Company to the water jetting market. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schopfheim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expanded the Company's manufacturing presence in Europe and provided distribution channels for its blower products, which are produced in the United States. In April 1999, the Company acquired Allen-Stuart Equipment Co., Inc. ("Allen-Stuart"), located in Houston, Texas. Allen-Stuart, which also conducts business as the Gardner Denver Engineered Packaging Center, designs, fabricates and services custom-engineered packages for blower and compressor equipment in air and gas applications. The addition of Allen-Stuart enhanced the Company's ability to supply engineered packages, incorporating the wide range of compressor and blower products manufactured by Gardner Denver. In April 1999, the Company also purchased Butterworth Jetting Systems, Inc., a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market, located in Houston, Texas. This operation, which was renamed Gardner Denver Water Jetting Systems, Inc., expanded the Company's position in the rapidly growing water jet market. In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"), located in Mayfield, Kentucky. Air Relief is an independent provider of replacement parts and service for centrifugal compressors. This operation enhanced the Company's ability to penetrate the centrifugal compressor market by adding key engineering, assembly, sales and service capabilities. 2 In January 2000, the Company acquired Invincible Airflow Systems, Co. ("Invincible"). Invincible, located in Baltic, Ohio, manufactures single and fabricated multi-stage centrifugal blowers and engineered vacuum systems. Invincible extends Gardner Denver's product offering for the industrial cleaning market and introduces the Company's centrifugal blowers to new markets. The Company acquired Jetting Systems & Accessories, Inc. ("JSA") in April 2000 and CRS Power Flow, Inc. ("CRS") in July 2000. JSA and CRS are located in Houston, Texas, and both manufacture aftermarket products for the water jetting industry. These two acquisitions complement the Company's product offering for the water jetting market and further leverage Gardner Denver's commitment to being a full service provider in the water jetting industry. MARKETS AND PRODUCTS Gardner Denver designs, manufactures, markets and services compressed air products and petroleum products. A description of the particular products manufactured and sold by Gardner Denver in its two industry segments is set forth below. Compressed Air Products Segment In the Compressed Air Products segment, Gardner Denver designs, manufactures, markets and services the following products and related aftermarket parts for industrial and commercial applications: rotary screw, reciprocating, sliding vane and centrifugal compressors, positive displacement and centrifugal blowers, and water jet pumps and systems. Sales of compressed air products by Gardner Denver in 2000 were $321.7 million, of which approximately 72 percent were to customers in the United States. Reciprocating compressors range from 0.5 to 900 horsepower and are sold under the Gardner Denver(R), Champion(R) and Commandair(R) trademarks. Rotary screw compressors range from 5 to 680 horsepower and are sold under the Gardner Denver(R), Electra-Screw(R), Electra-Saver(R), Enduro(R), RotorChamp(R), Twistair(R), Tamrotor(R), and Tempest(R) trademarks. Centrifugal compressors range from 400 to 1,500 horsepower and are sold under the GD Turbo(R) trademark. Blowers are used to produce a high volume of air at low pressures and vacuums. Centrifugal blowers produce a constant level of pressure and varying volumes of air flow. Positive displacement blowers provide a constant volume of air flow at varying levels of pressure. The Company's positive displacement blowers range from 0 to 36 pounds per square inch gauge (PSIG) pressure and 0-28 inches of mercury ("Hg) vacuum and 0 to 43,000 cubic feet per minute (CFM) and are sold under the trademarks Sutorbilt(R), DuroFlow(R), CycloBlower(R) and TurboTron(R). The Company's single-stage centrifugal blowers are sold under the tradename AeroFlow(R) and produce up to 8.5 PSIG pressure, 10.5 "Hg Vacuum and 600 to 10,000 CFM. The Company's multistage centrifugal blowers are sold under the tradename Lamson(R) and range from 0.5 to 22 PSIG pressure and 0-18 "Hg vacuum and 100 to 50,000 CFM. The Company's rotary sliding vane compressors and vacuum pumps range from 0 to 150 PSIG and 0 to 3,000 CFM and are sold under the trademark Wittig(R). The Company's engineered vacuum systems are used in industrial cleaning and maintenance and are sold under the Invincible(R), TurboClean(R) and Catvac(R) tradenames. 3 The Company's water jet pumps and systems are used in industrial cleaning and maintenance and are sold under the Liqua-Blaster(R) and American Waterblaster(R) trademarks. Almost all domestic manufacturing plants and industrial facilities, as well as many service industries, utilize air compressors and/or blowers. The largest markets for Gardner Denver's compressor products are durable goods manufacturers; process industries (petroleum, primary metals, pharmaceutical, food and paper); original equipment manufacturers ("OEMs"); manufacturers of carpet cleaning equipment, pneumatic conveying equipment, and dry and liquid bulk transports; wastewater treatment facilities; and automotive service centers. Manufacturers of machinery and related equipment use stationary compressors for automated systems, controls, materials handling and special machinery requirements. The petroleum, primary metals, pharmaceutical, food and paper industries require compressed air for process, instrumentation and control, packaging and pneumatic conveying. Blowers are instrumental to local utilities for aeration in treating industrial and municipal waste. Blowers are also used in service industries, for example, residential carpet cleaning to vacuum moisture from carpets during the shampooing and cleaning process. Blowers and rotary vane compressors are used on trucks to vacuum leaves and debris from street sewers and to unload liquid and dry bulk and powder materials such as cement, grain and plastic pellets. Additionally, blowers are used in numerous chemical process applications. Petroleum Products Segment Gardner Denver designs, manufactures, markets and services a diverse group of pumps and related aftermarket parts used in oil and natural gas production, well servicing and stimulation, and oil and gas drilling markets. Positive displacement reciprocating pumps are marketed under the Gardner Denver(R), Geoquip(R), Ajax(R) and OPI(R) trademarks. Sales of petroleum products in 2000 were $57.6 million, of which approximately 81 percent were to customers in the United States. Typical applications of Gardner Denver(R) pumps in oil and natural gas production include oil transfer, water flooding, salt water disposal, pipeline testing, ammine pumping for gas processing, re-pressurizing, enhanced oil recovery, hydraulic power and other liquid transfer applications. Gardner Denver's production pumps range from 16 to 600 horsepower and consist of horizontal and vertical designed pumps. Gardner Denver markets one of the most complete product lines of well servicing pumps. Well servicing operations include general workover service, completions (bringing wells into production after drilling), and plugging and abandonment of wells. Gardner Denver's well servicing products consist of high pressure plunger pumps ranging from 165 to 400 horsepower. Gardner Denver also manufactures intermittent duty triplex and quintuplex plunger pumps ranging from 250 to 3,000 horsepower for well cementing and stimulation, including reservoir fracturing or acidizing. Duplex pumps, ranging from 16 to 135 horsepower, are produced for shallow drilling, which includes water well drilling, seismic drilling and mineral exploration. 4 Continuous duty triplex mud pumps for oil and natural gas drilling rigs range from 275 to 2,000 horsepower. A small portion of Gardner Denver(R) and Ajax(R) pumps are sold for use in industrial applications. For financial information over the past three years on the Company's performance by industry segment and the Company's international sales, refer to Note 14 of the Notes to Consolidated Financial Statements included in Gardner Denver's 2000 Annual Report to Stockholders and incorporated herein by reference. CUSTOMERS AND CUSTOMER SERVICE Gardner Denver sells its products through independent distributors and sales representatives and directly to OEMs, engineering firms and end users. Gardner Denver uses a direct sales force to service OEM and engineering firm accounts because these typically require more technical assistance, shipment scheduling and product service. As a majority of Gardner Denver's products are marketed through independent distribution, Gardner Denver is committed to developing and supporting its distribution network of over 1,500 distributors and representatives. Generally, the distributors of Gardner Denver's compressed air products do not handle competing products. Gardner Denver has a Master Distribution Center in Memphis, Tennessee that stocks parts, accessories, blowers and small compressor products in order to provide adequate and timely availability. Gardner Denver also provides its distributors with sales and product literature, technical assistance and training programs, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Gardner Denver participates in major trade shows and has a telemarketing department to generate sales leads and support the distributors' sales staffs. The Company's distributors maintain an inventory of complete units and parts and provide aftermarket service to end users. There are several hundred field service representatives for Gardner Denver products in the distributor network. Gardner Denver's service personnel and product engineers provide the distributors' service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. Gardner Denver also provides aftermarket support through its remanufacturing facilities in Indianapolis, Indiana; Tulsa, Oklahoma; and Mayfield, Kentucky. The Indianapolis operation remanufactures and repairs air ends for rotary screw compressors, positive displacement blowers and reciprocating compressors. The Tulsa facility repairs and remanufactures well servicing pumps. The Mayfield operation provides aftermarket parts and repairs for centrifugal compressors. Outside the United States, Gardner Denver markets its products through a network of sales representatives, as well as distributors and direct sales persons. As a result of the acquisition of Tamrotor and Wittig, the Company also operates a compressor manufacturing and packaging facility in Finland and a compressor manufacturing and blower packaging facility in Germany, respectively. 5 COMPETITION Over 40 companies manufacture or market industrial air compressors in the United States. Of these, seven suppliers account for more than 80 percent of the domestic compressor market. Gardner Denver's principal competitors in the U.S. compressor market include Ingersoll-Rand, Sullair (a division of United Technologies Corporation), Atlas Copco, Quincy Compressor (a division of The BF Goodrich Company), CompAir (a division of Invensys P.L.C.) and Roots (a division of the Dresser Equipment Group of Halliburton Co.). The principal competitors in the petroleum products market include National-Oilwell. Each of the Company's business segments has a strong reputation and the Company's trademarks are recognized both domestically and internationally. Demand for compressed air products is dependent upon capital spending by manufacturing and process industries, and general economic conditions. Demand for petroleum products is tied to the number of working and available rigs and oil and natural gas prices. The principal competitive factors in both segments are quality, performance, price and availability. The relative importance of each of these factors varies depending on the specific type of product. The compressed air and petroleum products markets are characterized by mature products, with steady and slow technological advances. Technological trends in the compressed air market include, among others, development of oil-free air compressors, increased product efficiency, reduction of noise levels, and advanced control systems to upgrade the flexibility and precision of regulating pressure and capacity. Emerging compressed air market niches result from new technologies in plastics extrusion, oil and natural gas well drilling, field gas gathering, mobile and stationary vacuum applications, utility and fiber optic installation, environmental impact minimization, air separation processes as well as other factors. Trends in the petroleum products market include, among others, development of larger horsepower and lighter weight pumps. RESEARCH AND DEVELOPMENT The Company actively engages in a continuing research and development program. The Gardner Denver research and development centers are dedicated to various activities, including new product development, product performance improvement and new product applications. Gardner Denver's products are designed to satisfy the safety and performance standards set by various industry groups and testing laboratories. Care is exercised throughout the manufacturing and final testing process to ensure that products conform to industry, government and customer specifications. Gardner Denver has representatives on the American Petroleum Institute's working committee and the Company has relationships with standard enforcement organizations such as Underwriters Laboratories (U.L.), Det Norske Veritas (DNV) and the Canadian Standard Association (C.S.A.). The Company maintains ISO 9001 certification on the quality systems at a majority of its manufacturing and design locations. Expenditures for research and development sponsored by the Company were $3.0 million in 2000, $2.8 million in 1999 and $3.5 million in 1998. 6 MANUFACTURING Gardner Denver has sixteen manufacturing facilities that utilize a broad variety of processes. At its manufacturing locations, the Company maintains advanced manufacturing, quality assurance and testing equipment geared to the specific products that it manufactures, and uses extensive process automation in its manufacturing operations. Most of the manufacturing facilities utilize computer aided numerical control tools and manufacturing techniques that concentrate the equipment necessary to produce similar products in one area of the plant (cell manufacturing). One operator using cell manufacturing can monitor and operate several machines, as well as assemble and test products made by such machines, thereby improving operating efficiency and product quality while reducing the amount of work-in-process and finished product inventories. RAW MATERIALS The primary raw materials used by Gardner Denver are cast iron and steel. Such materials are generally available from a number of suppliers. The Company does not currently have long-term contracts with its suppliers of raw materials, but believes that its sources of raw materials are reliable and adequate for its needs. The Company utilizes single sources of supply for certain iron castings and other selected components. A disruption in deliveries from a given supplier could therefore have an adverse effect on the Company's ability to meet its commitments to customers. Nevertheless, the Company believes that it has appropriately balanced this risk against the costs of sustaining a greater number of suppliers. Moreover, the Company has sought, and will continue to seek, cost reductions in its purchases of materials and supplies by consolidating its purchases, pursuing alternate sources of supply and using online bidding competitions among potential suppliers. Historically, the Company has not experienced any significant supply problems in its operations; however, there can be no assurance that this will be the case in the future. BACKLOG The Company's backlog was approximately $60.3 million at December 31, 2000 as compared to approximately $53.9 million at December 31, 1999. This increase was due to the increase in demand of petroleum products and acquisitions. Backlog consists of firm orders for which a customer purchase order has been received or communicated and which are scheduled for shipment within twelve months. Since orders may be rescheduled or canceled, backlog does not necessarily reflect future sales levels. PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY The Company believes that the success of its business depends more on the technical competence, creativity and marketing abilities of its employees than on any individual patent, trademark or copyright. Nevertheless, as part of its ongoing research, development and manufacturing activities, the Company has a policy of seeking appropriate patents concerning new products and product improvements. In the aggregate, patents and trademarks are of considerable importance to the manufacturing and marketing of many of the Company's products. However, the Company does not consider any 7 single patent or trademark, or group of patents or trademarks, to be material to its business as a whole, except for the Gardner Denver(R) trademark. Other important trademarks used by Gardner Denver include DuroFlow(R), Sutorbilt(R), CycloBlower(R), Wittig(R), Lamson(R), Tamrotor(R), OPI(R), Champion(R) and Geoquip(R). Joy(R) is a registered trademark of Joy Technologies, Inc. Gardner Denver has the right to use the Joy(R) trademark on aftermarket parts until November 2027. The Company's right to use this trademark on air compressors expired in November 1995. Pursuant to trademark license agreements, Cooper has rights to use the Gardner Denver(R) trademark for certain power tools and Gardner Denver has rights to use the Ajax(R) trademark for petroleum pumps. Gardner Denver has registered its trademarks in the countries where it is deemed necessary. The Company also relies upon trade secret protection for its confidential and proprietary information. The Company routinely enters into confidentiality agreements with its employees. There can be no assurance, however, that others will not independently obtain similar information and techniques or otherwise gain access to the Company's trade secrets or that the Company can effectively protect its trade secrets. EMPLOYEES As of February 2001, the Company had approximately 1,800 full-time employees, of which approximately 500, including most of the employees in Finland and Germany, were represented by labor unions. In March 1997, the Company and the union at the Quincy, Illinois plant executed a five-year labor contract. The Company believes its current relations with employees are satisfactory. ENVIRONMENTAL MATTERS The Company is subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission, disposal and discharge of materials into the environment. The Company believes that its existing environmental control procedures are adequate and it has no current plans for substantial capital expenditures in this area. Gardner Denver has an environmental policy that confirms its commitment to a clean environment and to compliance with environmental laws. Gardner Denver has an active environmental management program aimed at compliance with existing environmental regulations and developing methods to eliminate or significantly reduce the generation of pollutants in the manufacturing processes. The Company has been identified as a potentially responsible party ("PRP") with respect to eight sites designated for cleanup under federal "Superfund" or similar state laws, which impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, Gardner Denver was only a small contributor to six of these waste sites and has reached, or is attempting to negotiate, de minimus settlements for their cleanup. The clean-up of the remaining two sites is substantially complete and the Company's future obligations entail a share of the sites' ongoing operating and maintenance expense. 8 The Company has an accrued liability on its balance sheet to the extent costs are known or can be estimated for its remaining financial obligations. Based upon consideration of currently available information, the Company does not anticipate any materially adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations or cleanup costs relating to the sites discussed above. ITEM 2. PROPERTIES As of December 31, 2000, Gardner Denver has sixteen manufacturing plants, three of which are remanufacturing operations, one distribution center, several warehouses and numerous sales offices. The significant facilities are as follows:
Owned Location Facility Type Sq. Feet or Leased -------- ------------- -------- --------- Quincy, Illinois Executive, Administrative 625,600 Owned and Sales Offices; Manufacturing - petroleum and compressor products Sedalia, Missouri Manufacturing - 325,000 Owned compressor products Princeton, Illinois Manufacturing - compressor 130,000 Owned products Peachtree City, Georgia Administrative and Sales 120,000 Leased Offices; Manufacturing - compressor products Memphis, Tennessee Distribution Center 98,000 Owned and Warehouse Houston, Texas Manufacturing - compressor 61,000 Leased products Fishers, Indiana Remanufacturing - 60,000 Leased compressor products Houston, Texas Manufacturing - compressor 57,200 Leased Products Baltic, Ohio Manufacturing-compressor 48,000 Owned products Tulsa, Oklahoma Manufacturing - 46,000 Owned petroleum products Fort Worth, Texas Manufacturing - 42,000 Owned petroleum products Mayfield, Kentucky Remanufacturing - compressor 41,200 Owned products 9 Tulsa, Oklahoma Remanufacturing - 24,000 Leased petroleum products Manteca, California Manufacturing - compressor 19,200 Owned products Houston, Texas Manufacturing - compressor 17,500 Leased products Oklahoma City, Oklahoma Sales Office and 8,000 Owned Warehouse Tampere, Finland Administrative and Sales 112,500 Leased Offices; Manufacturing - compressor products Schopfheim, Germany Administrative and Sales 91,500 Owned Offices; Manufacturing - compressor products
The Peachtree City, Georgia facility is currently leased from the Fayette County Development Authority in connection with industrial revenue bond financing. The Company has an option to purchase the property at a nominal price when the bonds are repaid in 2018. The Company leases sales office space in various U.S. locations and foreign countries, and warehouse space in Finland, Singapore, United Kingdom and France. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature, incidental to the operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of the stockholders. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Company, their positions with the Company, business history and certain other information, as of March 10, 2001, are set forth below. These officers serve at the pleasure of the Board of Directors.
Name Office Age ---- ------ --- Ross J. Centanni Chairman, President and Chief Executive Officer 55 Philip R. Roth Vice President, Finance and Chief Financial Officer 50 J. Dennis Shull Vice President and General Manager, 52 Gardner Denver Compressor and Pump Division David Brown Vice President and General Manager, 52 Gardner Denver Blower Division Steven M. Krivacek Vice President, Human Resources 52 Tracy D. Pagliara Vice President, General Counsel and Secretary 38
10 Ross J. Centanni, age 55, has been President and Chief Executive Officer and a director of Gardner Denver since its incorporation in November 1993. He has been Chairman of Gardner Denver's Board of Directors since November 1998. Prior to Gardner Denver's spin-off from Cooper, he was Vice President and General Manager of the Division, where he also served as Director of Marketing from August 1985 to June 1990. Mr. Centanni was Director of Corporate Planning for Cooper from August 1981 until joining the Division in 1985. He has a B.S. degree in industrial technology and an M.B.A. degree from Louisiana State University. Mr. Centanni is a director of Esterline Technologies, a publicly held manufacturer of components for avionics, propulsion and guidance systems, and Denman Services, Inc., a privately held supplier of medical products. He is also a member of the Board of Trustees of Quincy University. Philip R. Roth, age 50, joined the Company as Vice President, Finance and Chief Financial Officer in May 1996. Prior to joining Gardner Denver, Mr. Roth was employed by Emerson Electric Co. for fifteen years, most recently as the Vice President, Finance and Chief Financial Officer of the Wiegand Industrial Division. Mr. Roth, a Certified Public Accountant, received his B.S. degree in Business Administration from the University of Missouri and an M.B.A. from the Olin School of Business at Washington University. J. Dennis Shull, age 52, has been Vice President and General Manager, Gardner Denver Compressor and Pump Division since its organization in August 1997. He previously served the Company as Vice President, Sales and Marketing since the Company's incorporation in November 1993. From August 1990 until November 1993, Mr. Shull was the Director of Marketing for the Division. Mr. Shull has a B.S. degree in business from Northeast Missouri State University and an M.A. in business from Webster University. David Brown, age 52, joined the Company as Vice President and General Manager, Gardner Denver Blower Division in August 1997. Prior to that time Mr. Brown was employed by Alfa Laval Separation ("Alfa Laval"), as Vice President and General Manager of the Decanter Business Unit from 1992 until joining the Company in August 1997. He previously held other management positions with SKF USA from 1979 until joining Alfa Laval in 1992. Mr. Brown has a B.S.M.E. from the Case Institute of Technology. Steven M. Krivacek, age 52, has been Vice President, Human Resources for Gardner Denver since March 1995. He previously served the Company as Director of Human Resources from 1986 until his promotion. Mr. Krivacek has a B.A. in economics from California State College and an M.A. in industrial relations from St. Francis College. Tracy D. Pagliara, age 38, has been Vice President, General Counsel and Secretary of Gardner Denver since August 2000. Prior to joining Gardner Denver, Mr. Pagliara held positions of increasing responsibility in the legal departments of Verizon Communications/GTE Corporation from August 1996 to August 2000 and Kellwood Company from May 1993 to August 1996, ultimately serving in the role of Assistant General Counsel for each company. Mr. Pagliara, a Certified Public Accountant, has a B.S. degree in accounting and Juris Doctorate degree from the University of Illinois. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under "Stock Information" and "Dividends," contained on page 35 of Gardner Denver's 2000 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information under "Financial History," contained on page 12 of Gardner Denver's 2000 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under "Management's Discussion and Analysis," contained on pages 13 through 18 of Gardner Denver's 2000 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under "Management's Discussion and Analysis - Market Risk," contained on page 18 of Gardner Denver's 2000 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information under "Report of Independent Public Accountants" and "Consolidated Financial Statements and Notes," contained on pages 19 through 34 of Gardner Denver's 2000 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors contained under "Election of Directors," "Nominees for Election," and "Directors Whose Terms of Office Will Continue After the Meeting" contained on pages 3 and 4 of the Gardner Denver Proxy Statement, dated March 23, 2001, is hereby incorporated herein by reference. Information concerning the Company's executive officers is contained in Part I of this Annual Report on Form 10-K. 12 ITEM 11. EXECUTIVE COMPENSATION The information related to executive compensation contained under "Committees, Compensation and Governance of the Board of Directors" on pages 4 through 6, "Executive Management Compensation" on pages 9 and 10 and "Employee and Executive Benefit Plans" contained on pages 15 through 32 of the Gardner Denver Proxy Statement, dated March 23, 2001, is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under "Security Ownership of Management and Certain Beneficial Owners" contained on pages 7 through 9 of the Gardner Denver Proxy Statement, dated March 23, 2001, is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Annual Report --------------------------------------------- 1. Financial Statements and the related report of independent public accountants are incorporated by reference to the pages shown below in Gardner Denver's 2000 Annual Report to Stockholders.
Page No. -------- Report of Independent Public Accountants 19 Consolidated Statement of Operations for Each of the Three Years in the Period Ended December 31, 2000 20 Consolidated Balance Sheet as of December 31, 2000 and December 31, 1999 21 Consolidated Statement of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 2000 22 Consolidated Statement of Cash Flows for Each of the Three Years in the Period Ended December 31, 2000 23 Notes to Consolidated Financial Statements 24-34
13 The financial statement schedules listed below should be read in conjunction with the financial statements listed above. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes hereto. 2. Schedules --------- Report of Arthur Andersen LLP S-1 Schedule II - Valuation and Qualifying Accounts S-2 3. Exhibits -------- 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated January 18, 1995, and incorporated herein by reference. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 10.0 Credit Agreement, dated as of January 20, 1998, among Gardner Denver Machinery Inc., The First National Bank of Chicago and the lenders named therein, filed as Exhibit 10.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated May 14, 1998, and incorporated herein by reference. 10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to the Credit Agreement dated as of January 20, 1998 filed as Exhibit 10.0.1 on Form 10-Q, dated August 13, 1999, and incorporated herein by reference. 10.1* Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended, filed as Exhibit 10.1 to Gardner Denver, Inc.'s Annual Report on Form 10-K, dated March 29, 2000, and incorporated herein by reference. 10.2* Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3* Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 14 10.4* Form of Indemnification Agreements entered into between Gardner Denver Machinery Inc. and each of its directors and executive officers, filed as Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.5* Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.6* Gardner Denver, Inc. Phantom Stock Plan for Outside Directors, as amended May 4, 1998 and March 7, 2000, with an effective date of April 1, 2000. 10.7* Gardner Denver, Inc. Executive Stock Repurchase Program. 10.8* Form of Gardner Denver, Inc. Incentive Stock Option Agreement. 10.9* Form of Gardner Denver, Inc. Nonstatutory Stock Option Agreement. 10.10* Form of Gardner Denver, Inc. Nonemployee Director Stock Option Agreement. 13.0 The following portions of the Gardner Denver, Inc. 2000 Annual Report to Stockholders. Page No. -------- Financial History 12 Management's Discussion and Analysis 13-18 Report of Independent Public Accountants 19 Consolidated Statement of Operations 20 Consolidated Balance Sheet 21 Consolidated Statement of Stockholders' Equity 22 Consolidated Statement of Cash Flows 23 Notes to Consolidated Financial Statements 24-34 Stock Information 35 Dividends 35 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Gardner Denver Inc. Board of Directors. * Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. ------------------- There were no reports on Form 8-K during the quarter ended December 31, 2000. 15 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GARDNER DENVER, INC. By /s/Ross J. Centanni ------------------------------------- Name: Ross J. Centanni Title: Chairman, President and CEO Date: March 28, 2001 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/Ross J. Centanni Chairman, President and CEO March 28, 2001 - --------------------------------- (Principal Executive Officer) (Ross J. Centanni) and Director /s/Philip R. Roth Vice President, Finance and CFO March 28, 2001 - --------------------------------- (Principal Financial Officer) (Philip R. Roth) /s/Daniel C. Rizzo, Jr. Vice President and Corporate March 28, 2001 - --------------------------------- Controller (Chief Accounting (Daniel C. Rizzo, Jr.) Officer) *Donald G. Barger, Jr. Director March 28, 2001 (Donald G. Barger, Jr.) *Frank J. Hansen Director March 28, 2001 (Frank J. Hansen) *Raymond R. Hipp Director March 28, 2001 (Raymond R. Hipp) *Thomas M. McKenna Director March 28, 2001 (Thomas M. McKenna) *Diane K. Schumacher Director March 28, 2001 (Diane K. Schumacher) *Richard L. Thompson Director March 28, 2001 (Richard L. Thompson) *By /s/Tracy D. Pagliara --------------------------------------- (Tracy D. Pagliara, as Attorney-In-Fact for each of the persons indicated)
16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gardner Denver, Inc. We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Gardner Denver, Inc.'s. 2000 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 7, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP St. Louis, Missouri February 7, 2001 S-1 17 GARDNER DENVER, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, (dollars in thousands)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS YEAR ----------- ------------ ---------- ------------ ---------- ---------- 2000 - ---- Allowance for doubtful accounts $ 4,838 $ 635 $ 108 $ (412) $5,169 1999 - ---- Allowance for doubtful accounts $ 4,371 $ 380 $ 551 $ (464) $4,838 1998 - ---- Allowance for doubtful accounts $ 2,866 $ 306 $1,608 $ (409) $4,371 (1) Includes the allowance for doubtful accounts of acquired businesses at the dates of acquisition and the effect of foreign currency translation adjustments for those companies whose functional currency is not the U.S. dollar.
S-2 18 GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent, filed as Exhibit 4.0 to Gardner Denver Machinery Inc's Current Report on Form 8-K, dated January 18, 1995 and incorporated herein by reference. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 10.0 Credit Agreement, dated as of January 20, 1998, among Gardner Denver Machinery Inc., The First National Bank of Chicago and the lenders named therein, filed as Exhibit 10.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated May 14, 1998, and incorporated herein by reference. 10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to the Credit Agreement dated as of January 20, 1998 filed as Exhibit 10.0.1 on Form 10-Q, dated August 13, 1999, and incorporated herein by reference. 10.1* Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended, filed as Exhibit 10.1 to Gardner Denver, Inc.'s Annual Report on Form 10-K, dated March 29, 2000, and incorporated herein by reference. 10.2* Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3* Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 19 10.4* Form of Indemnification Agreements entered into between Gardner Denver Machinery Inc. and each of its directors and executive officers, filed as Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.5* Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.6* Gardner Denver, Inc. Phantom Stock Plan for Outside Directors, as amended May 4, 1998 and March 7, 2000, with an effective date of April 1, 2000. 10.7* Gardner Denver, Inc. Executive Stock Repurchase Program. 10.8* Form of Gardner Denver, Inc. Incentive Stock Option Agreement. 10.9* Form of Gardner Denver, Inc. Nonstatutory Stock Option Agreement. 10.10* Form of Gardner Denver, Inc. Nonemployee Director Stock Option Agreement. 13.0 The following portions of the Gardner Denver, Inc. 2000 Annual Report to Stockholders. Page No. -------- Financial History 12 Management's Discussion and Analysis 13-18 Report of Independent Public Accountants 19 Consolidated Statement of Operations 20 Consolidated Balance Sheet 21 Consolidated Statement of Stockholders' Equity 22 Consolidated Statement of Cash Flows 23 Notes to Consolidated Financial Statements 24-34 Stock Information 35 Dividends 35 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Gardner Denver, Inc. Board of Directors. * Indicates management contract or compensatory plan or arrangement. 20 -----END PRIVACY-ENHANCED MESSAGE-----